Under negative scenario, war will last until 2026 - IMF
The IMF has updated its negative scenario for Ukraine: the war will last until mid-2026.
This is reported by Censor.NET with reference to the IMF report.
It is assumed that the crisis will begin in the first quarter of 2025, affect economic sentiment, accelerate the return of migrants and lead to serious damage to energy infrastructure, causing power outages.
The program's negative scenario continues to assume a longer and more intense war. The IMF has updated its negative scenario, keeping the assumption that the war will last until mid-2026, although the shock to the economy is now expected to hit in the first quarter of 2025.
As a result, real GDP growth will be weaker than in the baseline scenario, at -2.5% in 2025 (compared to 2.5-3.5% in the baseline scenario).
The total deficit of external financing under the negative scenario is estimated at USD 177.2 billion, compared to USD 148 billion under the baseline scenario.
Forecasts of key macroeconomic variables under this scenario are much worse than under the baseline, but do not change much compared to the Fifth Revision and include a decline in real GDP followed by a slow recovery and higher and more persistent inflation; a deterioration in the current account balance excluding grants, with international reserves remaining below 100% of the ARA criterion by 2027; and a general deficit excluding grants that remains above 20% by 2026.
Overall, both the baseline and negative scenarios are still subject to exceptionally high uncertainty, in particular regarding the trajectory of the war and its implications for post-war recovery:
The war could intensify or last longer, negatively affecting economic performance and policy implementation and posing risks to medium-term prospects. Further attacks on energy infrastructure, exacerbated by the harsh winter, and unfavorable demographics pose a particular risk on this front
- the report says.
It is noted that international support may be short-lived. The program's 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 their support begins to wane, either Ukraine will face pressure from abrupt policy changes or suboptimal responses to fill the resulting funding gap, or the trajectory of the war itself could deteriorate.
An earlier end to the war, according to the IMF, could have a wide range of consequences. A potential peaceful settlement could, on the one hand, lead to a positive scenario, driven by existing international support and acceleration of reforms, a stronger economic recovery, and medium-term potential that could be driven by a faster return of migration and private investment flows anchored by EU accession. On the other hand, despite the earlier end of the war, the security situation may not stabilize in the short term, or the final damage from the war may be even more significant than currently anticipated. In this case, there are risks of unfavorable economic and social consequences, including a decline in private investment, increased migration, and a slowdown in the pace of reforms, which would lead to a slower or incomplete post-war recovery.
As a reminder, Ukraine will receive an IMF tranche of $1.1 billion. The funds will be used to finance important budget expenditures.
