Ukraine’s economy could collapse if war drags on: IMF
The government in kyiv continues to function, the banking system is stable and debt payments are sustainable in the short term, but the Russian invasion could plunge Ukraine into a devastating recession, the IMF said on Monday.
The Washington-based crisis lender also warned that the war could have wider repercussions, including threatening global food security by driving up prices and hampering the planting of crops, particularly wheat.
At a minimum, the country would see “output fall by 10% this year, assuming a quick resolution to the war,” the IMF said in an analysis of the economy in the wake of the Russian invasion.
Although the lender warned of “massive uncertainty” around the forecast, it said if the dispute drags on the situation will get worse.
Citing wartime data on the conflicts in Iraq, Lebanon, Syria and Yemen, the IMF said that “the annual contraction in output could possibly be much higher, in the order of 25-35%”.
The country’s economy grew by 3.2% in 2021 amid a record grain harvest and strong consumer spending.
But following the February 24 Russian invasion, “the Ukrainian economy has changed dramatically,” said Vladyslav Rashkovan, deputy executive director for Ukraine on the IMF board.
This includes the destruction of hospitals, schools and homes as well as “tens of miles of roads and countless critical infrastructure objects,” the official said in a statement.
Oleg Ustenko, economic adviser to Ukrainian President Volodymyr Zelensky, last week estimated the damage at $100 billion so far.
– ‘Hunger in Africa’ –
Despite the destruction, the country’s government and banks continued to operate, Rashkovan said, and as of March 1, the country held foreign exchange reserves of $27.5 billion, “which is enough for Ukraine to honors its commitments,” according to a statement. dated March 9.
The IMF, which last week approved a $1.4 billion emergency aid package for Ukraine, said “debt sustainability does not appear to be under threat” in the near term, although there are “very large” uncertainties.
Beyond the human and economic losses in the country, the IMF warns of the probable repercussions of the war on the world economy.
Since the start of the conflict, energy and agriculture prices have soared around the world, and the fund has warned they could get worse, fueling higher inflation.
“Disruptions to the spring agricultural season could also reduce exports and growth and jeopardize food security,” the report said.
The initial impact will be felt in prices, which will also drive up the costs of other foods like corn, according to the IMF.
Ukraine and Russia are considered agricultural breadbaskets because they are among the world’s largest wheat exporters, and a prolonged conflict could affect global food supplies if farmers are unable to sow.
“War in Ukraine means hunger in Africa,” IMF Managing Director Kristalina Georgieva told CBS on Sunday.
UN Secretary-General Antonio Guterres warned on Monday that the world must act to prevent “a hurricane of hunger and a collapse of the global food system”.
“This war goes far beyond Ukraine. It is also an attack on the most vulnerable people and countries in the world,” António Guterres told reporters in New York.
– Avoid hoarding –
The United Nations World Food Program warned in a report on Friday that countries that rely heavily on imported grains 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 increased supply 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 funding to help those most vulnerable and “to fill those gaps during a time of extreme disruption.”
The lender is arranging $3 billion in financing for projects in Ukraine, which Malpass says will be ready within the next six to eight weeks.
The UN said on Monday it had allocated $40 million to step up the humanitarian effort to deal with this “dark and growing crisis”.