IMF expects Ukraine's GDP to grow 2.5-3.5% in 2024, inflation to slow to 8%

MOSCOW. July 1 (Interfax) - The International Monetary Fund (IMF) projected that Ukraine's real GDP will grow by 2.5-3.5% in 2024 and improved its inflation forecast for the year to 8% from 8.5% following the fourth review of the Extended Fund Facility for the country, Ukrainian media reported, citing an IMF report on the fourth review.

After the third review of the EFF program, the IMF forecast that Ukraine's GDP would grow by 3-4% this year. The IMF also lowered its forecast for economic growth in 2025, to 5.5% from 6.5%, but left its inflation forecast at 7%.

The IMF slightly reduced its expectations for net exports, but domestic demand, private consumption and investment are now expected to make a bigger contribution to GDP than projected in the March report.

There are now clear signs of a slowdown in growth due to the deterioration of sentiment regarding the development of the conflict, as well as disruptions in power supplies, the head of the IMF mission in Ukraine, Gavin Gray said. Risks remain exceptionally high, particularly due to uncertainty regarding the conflict and external financing, he said.

He also said that the Ukrainian authorities will soon start working on the 2025 budget, which will require well-structured measures to mobilize internal revenue, including tax policy measures, steps to strengthen tax administration and decisive action to improve compliance with tax legislation, including in areas such as excises on tobacco products.

This is the challenge for the fall and the next EFF program review, and the IMF must see the whole picture in order to assess what financing is required, Gray said.

The IMF continues to believe there is room for further monetary policy easing this year after the reduction of the discount rate by 2 percentage points to 13% in June considering still high real interest rates and anchored expectations, Gray said, adding that the exchange rate should continue to act as a damper to increase resilience and support general macroeconomic stability.

He also said Ukraine needs foreign debt restructuring and the authorities are expected to continue to pursue their strategy to complete a debt restructuring in line with the EFF program conditions in the coming weeks.

The IMF's role in the restructuring is to set targets in line with the program, Gray said, recalling that the debt should be reduced to 65% of GDP by 2033, while gross financing needs should amount to an average of 8% of GDP in the post-program period of 2028-2033.

He also stressed the importance of continuous, timely and predictable disbursement of funds by donors. This program was developed based on a financing package of $122 billion, most of which comes from donors, and it is important any conditions on the part of donors are clearly oriented toward Ukraine's circumstances and taken into account by the authorities, Gray said.

The IMF's Executive Board completed the fourth review of the Extended Fund Facility for Ukraine on June 28 and approved the release of the fifth tranche in the amount of about $2.2 billion (SDR 1.66 billion), which will be used for budget support.

The four-year EFF Arrangement program of around $15.6 billion was approved on March 31, 2023, and is part of a $122 billion package of international support for Ukraine. The first tranche of $2.7 billion was allocated in early April last year, the second and third tranches of SDR 664 million (about $881 million-$890 million at the then exchange rate) were allocated in early July and mid-December 2023. The board of directors in late March this year approved allocating the fourth tranche of SDR 664 million, approximately $880 million, following the third review.

Two more tranches of SDR 835 million each are planned for 2024, in September and December, and two tranches of SDR 684 million are planned for 2025, at the beginning of March and at the end of August, after which three final tranches of SDR 966 million are planned.