The government in Kiev remains functional, the banking system stable and debt payments viable in the short term, but the Russian invasion could plunge Ukraine into a devastating recession, and jeopardize global food security, the IMF warned on Monday.
“At a minimum,” Ukrainian GDP will contract by around 10% in 2022, assuming a “rapid resolution” of the conflict and thanks to “substantial” international aid, according to a first estimate by the International Monetary Fund, which notes the “huge” uncertainty surrounding these projections.
If the conflict were to stagnate, based on wars in Lebanon, Iraq, Syria or Yemen, Ukraine's GDP could fall by 25 to 35%.
Last year, Ukraine's growth was 3.2%, driven by domestic demand and exports.
But since the invasion of the country by the Russian army on February 24, “the Ukrainian economy has changed radically,” Vladyslav Rashkovan, executive director of the IMF representing Ukraine, stressed in a statement to the IMF dated March 9 and published on Monday.
“As of March 6, 202 schools, 34 hospitals, more than 1,500 homes, including buildings, dozens of kilometers of roads and countless critical infrastructure in several Ukrainian cities have been totally or partially destroyed by Russian troops,” he describes based on information from the Ukrainian government.
Airports and seaports have been closed due to “mass destruction”.
And since then there has been more destruction.
On March 10, Oleg Ustenko, economic adviser to the Ukrainian president, gave a first estimate of the damage: $100 billion.
- “War in Ukraine, hunger in Africa” -
Despite extensive damage, the government and the country have continued to function until now.
“Banks are open, they even work on weekends,” Rashkovan told the IMF on March 9.
The IMF estimates that, in the short term, the sustainability of Ukrainian debt “does not seem to be threatened.”
“Preliminary data showed that, as of March 1, 2022, Ukraine's international reserves amounted to $27.5 billion (...) enough for Ukraine to meet its commitments,” said Rashkovan.
The IMF is also concerned about the consequences around the world. The prices of energy and agricultural raw materials have already skyrocketed.
For a commodity such as wheat, the effects could be even more dramatic: “Disturbances in the spring (boreal) agricultural season could hamper exports, as well as growth and threaten global food security,” the authors of the report note.
Ukraine, the “granary of Europe”, and Russia, account for about a third of the world's cereal trade.
Most of the Ukrainian wheat is exported in the summer and autumn from the northern hemisphere. The longer the war lasts, the more exports will be compromised, impacting current and future reserves.
These interruptions “have immediate effects for countries like Egypt, which are heavily dependent on grain imports from Russia and Ukraine,” the World Food Programme (WFP) said in a report released on Friday.
Beyond that, countries “most dependent on grain imports are at the forefront” of risk, as there food prices are rising, as a result of rising prices in world grain markets, adds the United Nations food aid agency.
The impact will be strong in Afghanistan, Ethiopia, Syria and Yemen “because of their dependence on wheat,” he warns.
“War in Ukraine means hunger in Africa,” Kristalina Georgieva, managing director of the IMF, lamented on CBS News on Sunday.
- “Hurricane of famines” -
UN Secretary General Antonio Guterres also warned on Monday about the risks of “a hurricane of famine and a collapse of the global food system.”
World Bank President David Malpass urged consumers to avoid accumulating flour and gasoline.
In a video interview with The Washington Post on Monday, he said that advanced economies such as the United States and Canada had “enough potential to significantly increase” supply to “mitigate this drop” in output.
The World Bank announced on Monday $200 million aid to Ukraine, which is in addition to the $723 million already approved.
The conflict compromises “the ability of vulnerable people in Ukraine to meet their basic needs,” Malpass said in a statement.
“This rapid support will help fill these gaps (...) as we work on broader support for Ukraine and the region.”
He mentioned “a specific set of projects totaling $3 billion” and could be ready in the “next six to eight weeks”.
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