Duration, intensity of crisis pose serious risk to Ukraine's economic outlook - IMF

MOSCOW. Nov 8 (Interfax) - The Ukrainian economy continues to recover in 2023 and its growth could reach 3.2% next year and 6.5% in 2025, but the duration and intensity of the crisis pose a major risk to the economic outlook, the International Monetary Fund (IMF) said.

"Medium-term prospects depend on the outcome of the crisis, the scale of reconstruction spending, return of migrants, structural reforms and prospects of EU accession," Ukrainian media quoted the IMF Regional Economic Outlook for Europe published on Wednesday morning as saying.

The recovery is attributed to increased resilience among firms and households during the crisis, supported by a rebound in domestic demand and improved consumer and business sentiments, the IMF said.

The foreign exchange market has remained broadly stable, facilitated by sizable international financial support. International reserves outperformed thanks to a better-than expected current account balance and declining foreign exchange drains, it said. This partly reflects a better-than-expected current account balance. Capital controls have also helped contain financial account outflows. Foreign direct investment inflows totaling about $2 billion since the beginning of the year to date and lower-than-expected foreign exchange outflows from the banking system also helped underpin the strong international reserves position.

At the same time, the IMF noted an increase in the budget deficit compared to last year, as higher expenditures more than offset higher revenues. The growth in expenditure was driven largely by defense-related spending, while tax revenues have benefited from the economic recovery. The fiscal deficit continues to be funded predominantly by external financial support.

The IMF noted that at the end of June it approved the first review under the four-year Extended Fund Facility, enabling the disbursement of about $890 million.

"Sustained reform momentum is needed, including in governance and anticorruption frameworks. With spending pressures growing, developing and executing a 2024 budget consistent with fiscal and debt sustainability will be critical," the IMF, whose mission began working on the second review of the EFF arrangement and the Article IV consultation this week, said.