IMF: War in Ukraine may extend into 2026

The International Monetary Fund (IMF) has revised its economic outlook for Ukraine, now projecting that the war with Russia will end in late 2025 or in 2026.

In its sixth review under the Extended Fund Facility (EFF), the IMF has outlined both a baseline and a downside scenario for Ukraine’s economic recovery, reflecting the prolonged conflict and its significant impact on the country's finances, Caliber.Az reports via Ukrainian media.

Under the IMF's baseline scenario, while the war is expected to continue into late 2025, Ukraine’s economy is projected to see moderate growth. The IMF forecasts real GDP growth of 4% in 2024, a 1 percentage point increase from earlier estimates. This positive outlook is attributed to the resilience of the energy sector, with Ukraine managing the economic impact of winter electricity shortages more effectively than initially feared. Factors such as investments in private generation capacity, expanded energy imports from Europe, and ongoing repairs to generation and distribution networks are key contributors to this stability.

However, inflationary pressures have risen, prompting the IMF to adjust its year-end inflation forecast to 10% for 2024. This increase is driven by rising raw food prices, currency depreciation, wage growth, and higher energy costs.

Looking into 2025, the IMF maintains a growth projection for real GDP at 2.5-3.5%, supported by energy capacity repairs and the commissioning of new facilities. However, the tightening labor market may limit income and consumption growth, while inflation is expected to ease somewhat. The average inflation forecast has been raised to 10.3%, up by 1.3 percentage points compared to the previous review.

In a more pessimistic downside scenario, the IMF anticipates the war continuing until mid-2026. This would extend the economic shock, worsening fiscal needs, and intensifying external financing gaps. Under this scenario, the total financing gap would balloon to $177.2 billion, compared to $148 billion in the baseline scenario.

A prolonged conflict would result in a steep decline in real GDP followed by a slow recovery, higher and more persistent inflation, and a deteriorating current account balance. International reserves would remain below the adequate threshold until 2027, and the overall deficit, excluding grants, is projected to stay above 20% until 2026.

On December 21, the IMF Board of Directors completed the sixth review of Ukraine’s Extended Fund Facility and approved a new tranche of US$1.1 billion to assist in stabilizing Ukraine’s economy during the ongoing crisis.

The IMF’s updated forecast underscores the need for continued international financial support for Ukraine, as the prolonged war continues to exert significant pressure on its economic stability and recovery prospects.

By Khagan Isayev