In a press release on Tuesday, the International Monetary Fund (IMF) stated that it has agreed to provide $15.6 billion in the form of a 48-month Extended Fund Facility Arrangement as financial assistance to Ukraine.
IMF Agreement
The Executive Board will approve the IMF loan agreement, which was discussed by Ukrainian officials and a team headed by IMF’s Gavin Gray in Warsaw from 8-15 March, in the coming weeks.
This will be the first time the organisation will provide a loan package to a war-torn country. To do so, the IMF had to alter a rule to allow loans to countries in exceptional cases with “high uncertainty.”
The loan programme will continue for four years to facilitate recovery and reconstruction of the Ukrainian economy. The first 18 months will focus on helping Ukraine close the “massive budget deficit” and ease the demand for printing money, which would otherwise result in “inflation and [destabilise] the currency.”
Highlighting the negative impacts of the Russian invasion, Gray said that “a large share of the capital stock has been destroyed and poverty levels have climbed.” Accordingly, he added that “concessional financing” would be provided by international partners and donors to support Ukraine during the war.
#AMAY| IMF agree on $15.6 billion loan package to Ukrainehttps://t.co/REOMwEzBSf pic.twitter.com/m950p2eZE4
— Egypt Independent (@EgyIndependent) March 23, 2023
Economic Impairment in Ukraine
Ukraine’s economy has contracted by 30% since the beginning of the Russia-Ukraine war, which began in February last year. According to the Vice President of the World Bank for Europe and Central Asia report, the devastation has led to “8 million people” living in poverty. Additionally, housing buildings, hospitals and schools have been severely damaged.
The government’s revenues have plummeted, but it continues to provide essential services, salaries and pensions to the Ukranians through the inflow of funds from various organisations and donors. Further, “Ukraine needs $3-4 billion per month” to sustain critical and essential services.
Ukrainians’ living conditions can be improved by immediately repairing roads, bridges, hospitals and power plants. In January, the Kyiv School of Economics reported that the cost of damage from the war had “reached nearly $138 billion.”
The PM of Ukraine, Denys Shmyhal, stated that the funding provided by the IMF would help his country “finance all critical expenditure and ensure macroeconomic stability” and also help in strengthening relations with its allies.
The IMF has reached a working-level agreement with Ukraine that will grant Ukraine a $15.6 billion loan.
— Visegrád 24 (@visegrad24) March 22, 2023
It will be the first time the IMF issues a loan to a country at war.
It will be the second-largest financial injection Ukraine receives and will amount to 10% of its GDP. pic.twitter.com/ycoXlU5NYE
The World Bank, which has estimated that Ukraine needs “$418 billion for reconstruction and recovery” after the continued attacks by Russia, has continued to provide financial assistance to “mitigate macroeconomic risks” for Ukraine by channelling funds through Public Expenditures for Administrative Capacity Endurance (PEACE). The funds have helped “mobilise more than $18 million to date.”