Ukraine's Challenging IMF Talks Amid Economic Growth and War Costs

Ukraine's Prime Minister Denys Shmyhal has indicated that discussions with the International Monetary Fund about future financing are challenging, despite Ukraine's continued economic gains. With massive economic aid and increased GDP, Ukraine is grappling with mounting defense costs amidst its prolonged conflict with Russia.

Prime Minister Denys Shmyhal revealed on Tuesday that negotiations with the International Monetary Fund regarding Ukraine's financing needs have been difficult, despite the country's continued economic growth.

Despite facing nearly 31 months of conflict since Russia's 2022 invasion, Kyiv has maintained macroeconomic and financial stability with the support of approximately $100 billion in economic aid from Western partners. The IMF's monitoring mission is currently in Kyiv for a fifth review of its $15.6 billion lending program to Ukraine. Shmyhal described the talks as 'difficult' and 'complicated,' particularly regarding financing plans for 2025.

The discussions between the IMF and the Ukrainian government have included potential tax hikes to boost revenues and address a projected $35 billion budget deficit for the next year, only $20 billion of which is already covered. Additional funds are also needed to cover $12.2 billion in defense spending for the remainder of this year.

For 2024, Ukraine is targeting defense spending of about 1.7 trillion hryvnias ($41.5 billion) as fighting intensifies and mobilization efforts ramp up. Shmyhal emphasized the importance of IMF cooperation for predictable and sustainable financing, noting that tax revenues have surpassed targets by around 75 billion hryvnias this year. The government also plans to increase borrowing and implement a 'war tax' on residents and businesses.

Ukraine's GDP grew by 3.7% in the second quarter, with official data showing a 2.7% year-on-year increase in July thanks to a good harvest, stable export routes, and increased state defense spending. However, inflation reached 7.5% year-on-year in August, according to the statistics service.

(With inputs from agencies.)