The government in Kyiv continues to function, the banking system is stable and debt payments are viable in the short term, but the Russian invasion could plunge Ukraine into a devastating recession, the IMF said Monday.
The Washington-based crisis lender also warned the war could have broader repercussions, including by threatening global food security by causing prices to rise and hampering the planting of crops, especially wheat.
At a minimum, the country would see “output falling 10 per cent this year, assuming a prompt resolution of the war,” the IMF said in an analysis of the economy in the wake of the Russian invasion.
Though the lender warned of “massive uncertainty” around the forecasts, it said if the conflict is prolonged, the situation will worsen.
Citing wartime data for conflicts in Iraq, Lebanon, Syria and Yemen, the IMF said the “annual output contraction could eventually be much higher, in the range of 25-35 per cent.”
The country’s economy grew 3.2 per cent in 2021 amid a record grain harvest and strong consumer spending.
But in the wake of the Russian invasion on February 24, “the economy in Ukraine dramatically changed,” said Vladyslav Rashkovan, alternate executive director for Ukraine on the IMF board.
That includes the destruction of hospitals, schools and houses as well as “tens of kilometres of roads, and countless objects of critical infrastructures,” the official said in a statement.
Oleg Ustenko, economic adviser to Ukraine’s President Volodymyr Zelensky, last week estimated the damage at $100 billion so far.
– ‘Hunger in Africa’ –
Despite the destruction, the government and banks in the country have continued to function, Rashkovan said, and as of March 1, the country held foreign reserves of $27.5 billion, “which is sufficient for Ukraine to meet its commitments,” according to a statement dated March 9.
The IMF, which last week approved a $1.4 billion emergency aid program for Ukraine, said “debt sustainability does not appear to be at risk” in the short term, although there are “very large” uncertainties.
Beyond the human and economic losses in the country, the IMF cautions about the likely spillovers from the war to the global economy.
Since the conflict began, the prices of energy and agriculture have soared worldwide, and the fund warned they could worsen, fueling rising inflation.
“Disruptions to the spring agriculture season could also curtail exports and growth and imperil food security,” the report said.
The initial impact will be on prices, which would also push costs of other food like corn higher, according to the IMF.
Ukraine and Russia are considered agricultural breadbaskets because they are among the largest wheat exporters in the world, and an extended conflict could hit global food supplies if farmers are unable to plant.
“War in Ukraine means hunger in Africa,” IMF Managing Director Kristalina Georgieva said Sunday on CBS.
UN Secretary-General Antonio Guterres warned Monday that the world must act to prevent a “hurricane of hunger and a meltdown of the global food system.”
“This war goes far beyond Ukraine. It is also an assault on the world’s most vulnerable people and countries,” Guterres told reporters in New York.
– Avoid hoarding –
The UN World Food Program in a report Friday cautioned that countries that rely heavily on imported grain will also feel the pain, including “hunger hotspots such as Afghanistan, Ethiopia, Syria and Yemen.”
World Bank President David Malpass on Monday urged consumers to avoid hoarding flour and gasoline, which will only make matters worse.
And he said producers in advanced economies like the United States and Canada “have substantial potential for supply increases that can soften this blow.”
The World Bank on Monday announced an additional $200 million in aid for the country, on top of the $723 million approved last week, of which $350 million has already been disbursed.
Malpass said the initial funds would provide financing to help the most vulnerable people and “to bridge those gaps during a time of extreme disruption.”
The lender is building $3 billion of financing for projects in Ukraine, which Malpass said will be ready in the next six to eight weeks.
The UN on Monday said it allocated $40 million funds to ramp up the humanitarian effort to deal with this “grim and escalating crisis.”