Seven months after Russia launched its devastating invasion of Ukraine, Kyiv’s dramatic counteroffensive is successfully clawing back territory in the Kharkiv region.
Ukraine’s recent battlefield successes mark the latest chapter in the war, which began when Russian troops invaded on Feb. 24. But as Europe’s biggest conflict since World War II rages on, Ukraine is pushing for more support from the International Monetary Fund.
On Sept. 13, Ukrainian president Volodymyr Zelensky tweeted about his discussions with IMF Managing Director Kristalina Georgieva. “Had a phone conversation with IMF Managing Director @KGeorgieva,” he wrote. “Thanked for the allocation of $1.4 billion of additional support. Discussed future cooperation to increase Ukraine’s financial stability.”
The $1.4 billion in support is being made through the IMF’s Rapid Financing Instrument, which is available to member countries facing an urgent balance-of-payments need.
“Excellent call with President @ZelenskyyUa,” Georgieva tweeted. “We discussed how @IMFNews can continue to back Ukraine and agreed to explore ways to ramp up our financial and policy engagement to Ukraine using all tools available to us.”
But Ukraine needs much more than $1.4 billion. In July, National Bank of Ukraine Governor Kyrylo Shevchenko told Reuters that the country is aiming for an IMF loan of $15 billion to $20 billion by the end of 2022.
“Ukraine faces a huge wartime budget deficit,” wrote Shevchenko in a recent opinion piece for the Financial Times. “This is inevitable for a country fighting a defensive war.”
Citing Ukraine’s finance ministry, Shevchenko wrote that to cover the deficit, the government needs at least $5 billion a month in funding. The central bank could issue money to help combat the deficit, but that would erode household savings, “deepen crisis trends” in the economy, fuel inflation and undermine social stability, Shevchenko said.
Ukraine is also an EU membership candidate, and Shevchenko noted that the group’s founding treaty prohibits national central banks from financing their governments. “Ukraine needs other sources of financial support for its economy,” he said.
So what is the next stage for Ukraine and the IMF?
“The IMF will soon start technical discussions with the Ukrainian authorities, starting with an in-person mission to assess the budget, which will be followed later in the year by closer engagement and monitoring of the full range of economic policies,” an IMF spokesperson told MarketWatch via email. “This will help lay the foundations for longer-term engagement and a potential full-fledged program.”
Bloomberg reports that Gavin Gray has been appointed as the IMF’s new mission chief in Ukraine. Gray, who served as the fund’s mission chief in Iraq from 2018 to 2020, was set to take up his new role on Sept. 20, according to Bloomberg.
Earlier this month, a joint assessment by the Ukrainian government, the European Commission and the World Bank estimated that the current cost of recovery and reconstruction in Ukraine is $349 billion. That figure is expected to grow as the war continues, they added.
Speaking at the Yalta European Strategy Conference in Kyiv earlier this month, Ukrainian Prime Minister Denys Shmyhal criticized the IMF for slow progress toward a new assistance package for the country. “After seeing leadership from the U.S. and Europe we have a quite passive attitude from the IMF,” he said, according to Bloomberg.
Reuters reported this week that Yuriy Butsa, Ukraine’s government commissioner for public debt management, is asking for bespoke packages of aid from the IMF and the World Bank worth tens of billions of dollars, which he wants to see implemented in the coming weeks.
Last month the World Bank announced $4.5 billion in additional financing for Ukraine under its Public Expenditures for Administrative Capacity Endurance (PEACE) in Ukraine project. The package is comprised of a $4.5 billion grant provided by the U.S.
“The World Bank Group is working hard to support the continuation of essential government services,” it said, in a statement provided to MarketWatch. “We have mobilized $13 billion in emergency financing, including commitments and pledges to provide wages for hospital workers, government and school employees, pensions for the elderly, salaries for public servants, and social programs for the vulnerable. ” Of that amount, $11 billion has been fully disbursed, according to the World Bank.
“In addition to this support, Ukraine needs urgent help for investment in immediate recovery needs – including pressing repairs to roads, bridges, housing, schools, clinics and energy infrastructure – to ensure that services can be delivered, and the population can have heat this winter,” it added. “The World Bank is creating a dedicated Trust Fund facility for Ukraine to channel resources to these and other urgent needs, and working with other development partners to prepare projects that can be funded and executed quickly.”
The National Bank of Ukraine’s Shevchenko told MarketWatch that the IMF’s assistance is critical for the war-torn country. “We are very much counting on the IMF’s support, as Ukraine’s expenditures on defense and support of households and the economy are running high, while the tax base has narrowed due to significant economic losses,” he told MarketWatch, via email.
Cooperation with the IMF also sends “an important signal” to other creditors, Shevchenko added. “The Fund’s support can be a catalyst for receiving other assistance,” he said. “This would help us gain access to the resources of other allies so that we can minimize our monetary financing efforts and thus maintain macrofinancial stability.”
MarketWatch has reached out to Butsa and Shmyhal with a request for comment on this story.
While Ukraine pushes for more assistance from the IMF, most U.S. companies in the country are up and running, according to the American Chamber of Commerce in Ukraine.
Almost three-quarters of the member companies surveyed by the organization are fully operational, the Kyiv-based organization said in a statement released last month.
One of the highest-profile chamber members is McDonald’s Corp MCD,
Last month, the Kyiv School of Economics reported that the total cost to Ukraine’s economy from the damage to and destruction of residential and nonresidential buildings and infrastructure had reached $113.5 billion.