Ukraine Targets are in Jeopardy as Political Risk Escalates: IMF

IMF programme targets for Ukraine are in jeopardy, given the deterioration in the economic outlook, fiscal and quasi-fiscal pressures, and heightened balance of payment difficulties, the fund said on 2 September.

"Two end-July performance criteria (PC) are estimated to have been missed; and the end-2014 targets are out of reach," the IMF said.

Intensification of the conflict in the east and escalation of the gas dispute with Gazprom, two of the key risks identified at the time of the program request, have materialised, the statement said.

The IMF said that those developments have affected confidence, balance of payment flows, economic activity, and budget execution.

War's economic damage

The banking sector has had to cope with larger-than-anticipated deposit outflows, and the exchange rate has depreciated more than expected at the time of the program request.

"The authorities have implemented policies broadly as agreed, but significant pressures have emerged. All but one performance criteria for end-May were met, and all structural benchmarks have been implemented, albeit some with a delay," the press release on Tuesday said.

The fund said that risks loom large for Ukraine, as the IMF program hinges crucially on the assumption that the conflict will begin to subside in the coming months.

"Should active fighting continue well beyond that, the small buffers under the revised baseline would be quickly exhausted, requiring a new strategy, including additional external financing," according to Tuesday's statement.

Worldwide stability needed

A further heightening of geopolitical tensions could also have significant economic consequences, IMF said.

"Domestically, policymaking may become more difficult in case of early elections. Strong policy performance and adherence to the planned reforms is therefore critical."

The IMF said it supported the Ukraine authorities' request for completion of the first review and the waivers for nonobservance and applicability of performance criteria.

The purchase released upon completion of the review would be in the amount of SDR 914 million ($1.39bn, €1bn, £840m), of which SDR 650 million will be used to finance the budget deficit, the IMF said.