(Bloomberg) -- The International Monetary Fund said that Ukraine likely needs $4.8 billion in external financing amid a deep recession this year and is working on setting up a fund to help countries steer more resources to the nation invaded by Russia.
Ukraine's gross domestic product will contract 10% in 2022 if there's a prompt resolution to the war, IMF staff estimated in a report released on Monday. That compares with declines of 6.6% in 2014 and 9.8% in 2015 after Russia annexed Crimea and a 3.2% expansion last year, when the nation benefited from a record grain harvest and strong consumer spending.
The contraction could eventually be much deeper, in the range of 25% to 35%, based on data about real-time GDP contractions in nations including Iraq, Lebanon, Syria and Yemen, the IMF said. The fund's financing-gap estimates should be seen as a bare minimum and a bridge toward the point in time when a comprehensive post-war assessment will permit an adequate estimate of financing needs, which would likely be significantly higher, the fund said.
The IMF is also establishing a trust that will allow nations to channel resources to Ukraine, officials told reporters in a briefing on Monday, without providing an estimate of how much that process will raise. The institution in the past has used donations of reserve assets, known as special drawing rights, to such trusts to channel billions of dollars to low-income nations.
“Against this extraordinary background, the IMF has approved critical financial support,” Managing Director Kristalina Georgieva said in a statement. “This should be instrumental in catalyzing the large-scale mobilization of additional concessional financing that will be required to help fill the financing gap and mitigate the economic impacts of the war.”
Emergency Support
The economic assessment was prepared for the IMF board's consideration for the $1.4 billion emergency loan to the nation that executive directors approved last week.
Ukraine's debt remains sustainable if there's a fast end to the war, given gross reserves of almost $31 billion at the end of last year and likely upfront official financial support, the IMF said.
The fund acknowledged that uncertainties remain very large, and Ukraine's ability to repay IMF lending is subject to exceptional risks, but projected that the loan will encourage others to step up as well.
The IMF said that it expects Ukraine's external financing needs to be covered by the fund, the World Bank, the European Union, other international financial institutions and the Group of Seven nations. The fund said that because Ukraine would be unable to commit to the kind of economic policy changes typically required for a loan from the IMF, funding could come under its Rapid Financing Instrument, which doesn't come with such conditions.
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U.S. Congress last week approved $13.6 billion in humanitarian and security aid for Ukraine as part of a full-year $1.5 trillion federal funding bill. The World Bank also unveiled more than $700 million in emergency financing pulled together with help from member nations to fund Ukraine's essential services and said that it's preparing a $3 billion support package.
Sanctions slapped on Russia in response to its invasion are widely expected to have a significant impact on President Vladimir Putin's nation, with the Institute of International Finance, the Washington-based association for the financial industry, forecasting a 15% contraction in GDP. The IMF said last week that it will likely cut its global forecast when the next update of its World Economic Outlook is released next month.
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