Ukraine's economy may shrink up to 35% if war continues, says IMF

The report, prepared ahead of the IMF`s approval of $1.4 billion in emergency financing, said Ukraine`s economic output could shrink by 25% to 35%, based on real wartime gross domestic product data from Iraq, Lebanon and other countries at war.

Washington: Ukraine`s economy is expected to contract by 10% in 2022 as a result of Russia`s invasion, but the outlook could worsen sharply if the conflict lasts longer, the International Monetary Fund said in a staff report released on Monday.

The report, prepared ahead of the IMF`s approval of $1.4 billion in emergency financing, said Ukraine`s economic output could shrink by 25% to 35%, based on real wartime gross domestic product data from Iraq, Lebanon and other countries at war.

The report, dated March 7, said Ukraine has an external financing gap of $4.8 billion, but its financing needs were expected to grow and it would require significant additional concessional financing.

The country`s public debt was expected to spike to 60% of GDP in 2022 from around 50% in 2021, the report said. "Staff expects a deterioration in the growth outlook of at least 13.5 percentage points relative to a pre-war baseline, with output falling 10% this year, assuming a prompt resolution of the war, and substantial donor support," it said. That compares to a 6.6% drop in output in 2014, the year that Russia annexed the Crimea region of Ukraine, and just under 10% in 2015.

IMF staff said there was massive uncertainty about the outlook, given the intensity of the conflict, and warned that increasing loss of physical capital stock and huge refugee flows could result in "significantly more pronounced output contraction," a collapse in trade flows and lower tax revenues.