While peace talks are without result, the IMF has identified a negative scenario: war until mid-2026
Kyiv • UNN
The International Monetary Fund has updated its negative scenario for Ukraine, assuming the continuation of the war until mid-2026 due to the lack of tangible results from peace negotiations. This implies a possible "shock" in the third quarter of 2025, which will affect economic sentiment and infrastructure.
At the same time, experts from the International Monetary Fund also consider the scenario of the war ending by the end of 2025 as probable. However, the updated document states that the post-war environment remains extremely uncertain.
UNN reports with reference to imf.org.
Details
In accordance with the Fund's policy on lending in conditions of exceptionally high uncertainty, Fund staff updated the negative scenario, basing it on the assumption of a more intense war lasting until mid-2026.
It is also noted that a "shock" is expected in the third quarter of 2025, but first and foremost, the scenario "assumes a longer and more intense war compared to the current baseline scenario."
For reference
According to the baseline scenario, which the IMF still takes into account, Russia's war against Ukraine should end in the last quarter of 2025 - this is the baseline scenario, but its relevance is not yet definitively denied.
Regarding the war that could end by mid-2026 and the forecast of a "shock."
The shock will have a significant impact on business and household sentiment and the pace of migrant return, and will also cause further extensive damage to energy infrastructure and power outages compared to the baseline scenario.
Overall, the 170-page document repeats, in one form or another, the thesis that "risks and uncertainties remain exceptionally high."
The war assumptions underlying the program scenarios remain relevant, as peace talks have not yet yielded tangible results, creating both positive and negative risks regarding the duration and intensity of the war.
It is stated that the current program "has limited capacity to absorb any new shocks." Including from a longer and more intense war. But, the IMF program "gives Ukraine enough time to carry out reforms necessary to restore external viability in the medium term."
2025 growth forecast remains at 2-3%
The GDP growth forecast for 2025 remains at 2-3% y/y, as a smaller-than-expected power deficit is largely offset by higher gas import needs due to reduced domestic production capacity and lower agricultural exports.
Inflation remains high but moderate, expectations generally stable. War-related pressures require an additional budget for 2025. Defense spending needs for 2025 have increased, necessitating an additional budget.
The medium-term fiscal course has been revised with a more balanced fiscal adjustment and a changed expenditure structure.
It also mentions "the authorities' determination in policy formulation (although it has recently somewhat decreased due to a weakening reform impulse in parliament) and emergency planning" - states the document.
The international community's commitment to continued support for Ukraine is upheld.
The IMF predicts that "high defense needs and weaker economic activity will lead to a further increase in the budget deficit in 2025–2026," - despite the anticipated implementation of some corrective measures.
The analytical document also indicates that "the post-war environment remains extremely uncertain." If spending pressure is greater than provided for in the budget declaration, the authorities will have to take additional measures to increase revenues. As stated in the document:
(Additional measures to increase revenues) despite resistance that may arise due to political and vested interests, particularly regarding VAT, the continuation of the military levy after the war, and the fight against tax evasion.
It should be noted that the IMF report also states:
An earlier end to the war could also unlock a positive scenario, provided appropriate security guarantees, international support, and decisive reforms are in place.
Recall
The International Monetary Fund revised the EFF program for Ukraine, postponing and adding new structural benchmarks, while Ukraine is asking to change the structure of payments in 2025. All quantitative performance criteria as of the end of March have been met, and the total size of the IMF program remains $15.5 billion.