The International Monetary Fund agreed to loan Ukraine US$15.6 billion over four years in a show of support that helps the nation shoulder a massive wartime budget deficit and sends a signal to potential donors.
The Washington-based IMF, which provides emergency loans for nations to weather economic crises, is a backbone for the international monetary system and its 190 member nations.
Ukraine incurred a huge deficit mainly due to its enormous military spending, and had to rely on its central bank printing more money to loan to the government, but the United States, European Union and others have since helped with financing.
A team led by its mission chief for Ukraine, Gavin Gray, met with Ukrainian officials in Warsaw earlier this month to discuss a loan, which still requires approval from IMF's executive board.
Gray said Ukraine's economy shrunk by 30% last year because of Russia's invasion on Feb. 24, 2022, while a large share of the capital stock has been destroyed and poverty levels have climbed.
“In addition to the horrific humanitarian toll," he said, "Russia’s invasion of Ukraine continues to have a devastating impact on the economy."
FYI chart: Agriculture accounted for nearly 13% of Ukraine’s prewar economy pic.twitter.com/c6MJNg6qJF
— Richard Baldwin (@BaldwinRE) March 22, 2023
'A devastating impact on the economy'
The IMF's action also is intended to reassure potential donor governments that Ukraine's government is on a firm financial footing.
Gray said IMF's main goals are to improve stability, restore debt sustainability, and support Ukraine’s recovery on the path toward European Union accession.
“The staff-level agreement reflects the IMF’s continued commitment to support Ukraine and is expected to help mobilize large-scale concessional financing from Ukraine’s international donors and partners over the duration of the program," he said.
The loan has two phases: 12-18 months of bolstering revenue and lowering debt, then a shift to recovery, early reconstruction, resilience and long-term growth. That will help mobilize more international financing, maintain macrofinancial stability and ensure a path to reconstruction, Ukraine’s finance ministry
"We are grateful to the IMF team for standing with Ukraine," said Ukraine's Finance Minister Sergii Marchenko.
The loan, he said, will "significantly support the Ukrainian economy, financial system and will ensure mobilization of additional donor’s financial resources which is necessary for our successful struggle against the aggressor."
