December 23, 2024
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The IMF has updated its forecast for Ukraine: the war may last until the middle of 2026

The IMF has updated its forecast for Ukraine: the war may last until the middle of 2026. The IMF has presented an updated negative scenario for Ukraine with a forecast of a war until the middle of 2026. Under this scenario, a 2.5% drop in GDP is expected in 2025 and a deficit of external financing of $177.2 billion.”, — write on: unn.ua

The International Monetary Fund updated the negative scenario for Ukraine in the event of a more intense war. According to the negative scenario, the war will last until the middle of 2026. About this UNN reports with reference to the IMF report.

Details

According to the base scenario, the IMF continues to assume that the war will subside by the end of 2025.

The economic impact of the winter energy shortage may be more limited than previously expected, thanks to business investment in own generation capacity, increased import capacity and business investment in own generation capacity, increased capacity to import from Europe, and efforts to repair and install additional generation capacity and distribution networks.

Negative scenario program continues to foresee a longer and more intense war. The IMF updated its negative scenario, maintaining the assumption that the war will continue until mid-2026, although the shock to the economy is now expected in the first quarter of 2025.

As a result, real GDP growth will be weaker than in the baseline, ie -2.5% in 2025 (compared to 2.5-3.5% in the baseline).

The total deficit of external financing under the negative scenario is 177.2 billion. US dollars compared to 148 billion US dollars for the base scenario.

The forecasts of the main macroeconomic variables under this scenario are significantly worse than under the baseline, but are little changed compared to the Fifth Revision and foresee: a reduction in real GDP followed by a slow recovery and higher and more persistent inflation; deterioration of the current account balance excluding grants, when international reserves will remain below 100% of the ARA criterion until 2027; and a total deficit excluding grants that will remain above 20% until 2026.

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Overall, both the baseline and downside scenarios are still subject to exceptionally high uncertainty, particularly regarding the trajectory of the war and its implications for post-war recovery:

The war could intensify or last longer, which would have a negative impact on economic performance and policy implementation and create risks for the medium-term outlook. Further attacks on energy infrastructure, exacerbated by harsh winters, and adverse demographics pose particular risks on this front

It is noted that international support may be short-lived. The program scenarios assume that Ukraine will continue to receive significant financial and security assistance in the future. If the willingness of Ukraine’s partners to continue support begins to wane, either Ukraine will face pressure from abrupt policy changes or suboptimal retaliatory measures aimed at eliminating the resulting funding shortfall, or the trajectory of the war itself may deteriorate.

An earlier end to the war, according to the IMF, could cause a wide range of consequences. A potential peaceful settlement could, on the one hand, lead to a positive scenario due to the existing international support and acceleration of reforms, stronger economic recovery and medium-term potential, which could be due to a faster return of migration and private investment flows secured by EU accession. On the other hand, despite the earlier end of the war, the security situation may not stabilize in the shortest possible time, or the final damage from the war may turn out to be even more significant than currently anticipated. In this case, there are risks of adverse economic and social consequences, including a decline in private investment, increased migration and a weakening of the pace of reforms, leading to a slow or incomplete post-war recovery.

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