IMF approves $2.2 billion disbursement to Ukraine after loan review

By David Lawder

WASHINGTON (Reuters) -The International Monetary Fund on Friday said its executive board approved a $2.2 billion disbursement to Ukraine for budget support and urged external donors to keep up support for the war-torn country amid a deteriorating economic outlook.

The IMF's approval of the fourth review of the four-year, Extended Fund Facility brings total disbursements to $7.6 billion, nearly half of the $15.6 billion program approved in March 2023.

The IMF said in a statement that Ukraine's performance under the extended fund facility program remains strong despite challenging conditions, with quantitative targets met and structural benchmarks implemented on time or with a short delay.

While Ukraine's economy performed strongly during the first quarter of 2024, the outlook for the second half of 2024 and into 2025 has deteriorated, amid increased Russian attacks on Ukraine's power infrastructure and deteriorating consumer and business sentiment as the war evolves.

The fund adjusted downward its 2024 GDP growth forecast for Ukraine to a range of 2.5-3.5%, compared to a prior forecast of 3.2% in the April World Economic Outlook.

The IMF program is part of a package of external support, mostly from donor countries that it estimates at about $122 billion over the four-year program window. The IMF said a downside scenario would require $141 billion in external financing.

Neither estimate includes the potential proceeds from a $50 billion loan that the G7 industrial democracies have agreed to grant Ukraine, backed by the earnings from frozen Russian assets, said Gavin Gray, the IMF's Ukraine mission chief.

Gray told reporters that the IMF would reassess Ukraine's financing framework should the loan be completed, but it was important that the use of Russian assets has "sufficient legal underpinnings" and does not undermine the functioning of the global financial system.

"Above all, continued support from all external partners is essential for Ukraine to sustain the progress on growth and stability, which has been achieved over the past year," Gray said. "Without these resources, the hard-won macro-stabilization gains could be jeopardized."

Gray said that he did not expect the weaker economic outlook to have a material impact on Ukraine's negotiations with bondholders to restructure its debt, which are based on a medium-term framework that remains largely unchanged. He added that there have recently been "intensifying discussions" with bondholders and the IMF expects a completion of the negotiations in coming weeks.

(Reporting by David Lawder; Editing by Andrea Ricci)