The International Monetary Fund announced Friday it will provide $1.3 billion in emergency aid to Ukraine through its new food crisis assistance program.
The package will help meet Ukraine’s “urgent balance of payment needs… while playing a catalytic role for future financial support from Ukraine’s creditors and donors,” the IMF said in a statement.
“The scale and intensity of Russia’s war against Ukraine that started more than seven months ago have caused tremendous human suffering and economic pain…. Real GDP is projected to contract by 35 percent in 2022 relative to 2021 and financing needs remain very large.”
Ukrainian President Volodymyr Zelensky had unveiled the IMF’s aid earlier Friday. “The money will go to Ukraine today,” he said on Twitter, thanking the crisis lender’s managing director Kristalina Georgieva and its executive board.
The IMF also said Ukrainian authorities “deserve considerable credit for having maintained an important degree of macro-financial stability in these extremely challenging circumstances.”
Last week, the World Bank granted Ukraine $530 million in additional aid to “meet urgent needs created by Russia’s invasion.” The bank said it had already mobilized almost $13 billion in emergency funding for Ukraine, $11 billion of which had already been disbursed.
The same day, the US Congress approved a new $12.3 billion aid package for Ukraine, including $3.7 billion in military equipment. The United States has given a total of $65 billion to Kyiv since Russia invaded in February.
President Vladimir Putin announced late last month that Russia had annexed four regions in Ukraine’s south and east. But Kyiv’s forces in recent weeks have been pushing back against Russian soldiers across the frontlines, including in parts of Donetsk.
Surging inflation and severe slowdowns in the United States and China prompted the IMF Tuesday to downgrade its outlook for the global economy this year and next, while giving an even starker assessment of what may lie ahead.
“The outlook has darkened significantly since April,” said IMF chief economist Pierre-Olivier Gourinchas. “The world may soon be teetering on the edge of a global recession, only two years after the last one.”
“The world’s three largest economies, the United States, China and the euro area are stalling with important consequences for the global outlook,” he said at a briefing.
In its latest World Economic Outlook, the International Monetary Fund cut the 2022 global GDP estimate to 3.2 percent, four-tenths of a point lower than the April forecast, and about half the rate seen last year.
Last year’s “tentative recovery” from the pandemic downturn “has been followed by increasingly gloomy developments in 2022 as risks began to materialize,” the report said.
“Several shocks have hit a world economy already weakened by the pandemic,” including the war in Ukraine which has driven up global prices for food and energy, prompting central banks to raise interest rates sharply, the IMF said.
Ongoing Covid-19 lockdowns and a worsening real estate crisis have hindered economic activity in China, while the Federal Reserve’s aggressive interest rate hikes are slowing US growth sharply.
But the bad news may not stop there, IMF warned, saying that “risks to the outlook are overwhelmingly tilted to the downside,” and if they materialize could push the global economy into one of the worst slumps in the past half-century.
Key among concerns is the fallout from the Ukraine war including the potential for Russia to cut off natural gas supplies to Europe, as well as a further spike in prices and the specter of famines due to the war’s chokehold on grain supplies.
In an ominous warning, the WEO said “such shocks could, if sufficiently severe, cause a combination of recession accompanied by high and rising inflation (‘stagflation’).”
That would slam the brakes on growth, slowing it to 2.0 percent in 2023. The global growth rate has only been slower five times since 1970, the report said.
Gourinchas said that would be “getting really close to a global recession.”
The top priority for policymakers is to rein in soaring prices, even if it means pain for their citizens, the fund said, since the damage caused by out-of-control inflation would be much worse.
Gourinchas, in a blog post about the report, noted that the “synchronized” moves by major central banks to deal with the inflation threat “is historically unprecedented, and its effects are expected to bite.”
“Tighter monetary policy will inevitably have real economic costs, but delaying it will only exacerbate the hardship,” he said.
The IMF now sees consumer prices jumping 8.3 percent this year, nearly a full point higher than previously forecast, while emerging market economies face a 9.5 percent increase in consumer prices.
But, “further supply-related shocks to food and energy prices from the war in Ukraine could sharply increase headline inflation.”
That would increase the pain for poor nations least able to withstand the shock, where food makes up a larger share of family budgets.
US, China slowdown
While the global economy did a bit better than expected in the first three months of the year, it appears to have “shrunk in the second quarter — the first contraction since 2020,” the IMF said.
The IMF downgraded growth forecasts for most countries, including big revisions for the United States and China, cutting more than a point off the prior forecasts.
The fund now sees US growth this year of just 2.3 percent, amid slowing consumer spending and rising interest rates, and the report said a recession — defined by two quarters of negative growth — may already have begun.
Gourinchas said the US has a “very narrow path” to avoid a downturn, and even a “small shock” could tip the economy into recession.
China’s economy is expected to slow dramatically in 2022, expanding just 3.3 percent — the lowest in more than four decades with the exception of the 2020 pandemic crisis — due to continuing Covid concerns and a “worsening” property crisis, the report said.
“The slowdown in China has global consequences: lockdowns added to global supply chain disruptions and the decline in domestic spending are reducing demand for goods and services from China’s trade partners,” the report said.
There were some exceptions to the gloomy outlook, including upgrades for Italy, Brazil and Mexico, as well as for Russia which is still expected to contract but is benefiting from rising oil prices due to Western sanctions, the WEO said.
Despite damaging Western sanctions imposed on Moscow in the wake of the invasion of Ukraine, Russia’s economy appears to be weathering the storm better than expected as it benefits from high energy prices, the IMF said Tuesday.
The sanctions were meant to sever Russia from the global financial system and choke off funds available to Moscow to finance the war.
But the International Monetary Fund’s latest World Economic Outlook upgraded Russia’s GDP estimate for this year by a remarkable 2.5 percentage points, although its economy is still expected to contract by six percent.
“That’s still a fairly sizable recession in Russia in 2022,” IMF chief economist Pierre-Olivier Gourinchas told AFP in an interview.
A key reason that the downturn was not as bad as expected was that “the Russian central bank and the Russian policymakers have been able to stave off a banking panic or financial meltdown when the sanctions were first imposed,” he said.
Meanwhile, rising energy prices are “providing an enormous amount of revenues to the Russian economy.”
After starting the year below $80 a barrel, oil prices spiked to nearly $129 in March before easing back to under $105 on Tuesday for Brent, the key European benchmark, while natural gas prices are rising again and approaching their recent peak.
While major economies including the United States and China are slowing, the report said, “Russia’s economy is estimated to have contracted during the second quarter by less than previously projected, with crude oil and non-energy exports holding up better than expected.”
Meanwhile, despite the sanctions, Russia’s “domestic demand is also showing some resilience” due to government support.
But Gourinchas said “there is no rebound” ahead for Russia. “In fact,” the IMF is “revising down the Russian growth in 2023,” 1.2 points lower than the April forecast for a contraction of 3.5 percent.
The penalties already in place, as well as new ones announced by Europe, mean “the cumulative effect of the sanctions is also growing over time,” he said.
The report indicates Europe is facing the brunt of the fallout from sanctions given its reliance on Russia for energy. The situation could worsen dramatically if Moscow cuts off gas exports, and once the European Union imposes a ban on Russian oil delivered by sea starting next year.
The IMF will send a team to Ghana this week to begin talks on a possible loan program for the West African nation, the fund announced Tuesday.
The nation’s President Nana Akufo-Addo had previously rejected calls to seek financial assistance from the IMF, but last week authorized the step as the country faces soaring inflation.
“On the basis of a request from the Ghanaian authorities, an IMF staff team will in the coming days kick-start discussions on a possible program to support Ghana’s homegrown economic policies,” Carlo Sdralevich, IMF mission chief for Ghana, said in a statement.
“We are at an early stage in the process, given that detailed discussions are yet to take place,” Sdralevich said.
He will lead the International Monetary Fund staff team visit to Accra July 6-13.
The announcement came followed two days of protests in the capital over the rising cost of food and fuel, after the country was hit with inflation of more than 27 percent in May — the highest in almost two decades.
Brawls have erupted in the hung parliament as the government tries to push tough policies it believes could salvage the economy.
Data from Ghana’s central bank indicates the country’s debt-to-GDP ratio was 80.1 percent at the end of last year, and fuel prices have shot up as a result of Russia’s invasion of Ukraine.
“The IMF stands ready to assist Ghana to restore macroeconomic stability, safeguard debt sustainability, and promote inclusive and sustainable growth, and address the impact of the war in Ukraine and the lingering pandemic,” said Sdralevich.
Bitcoin is not a cure-all for Africa’s economic woes, the International Monetary Fund warned Thursday, after the Central African Republic adopted the cryptocurrency as legal tender.
The head of the IMF’s African department, Abebe Aemro Selassie, said that a “robust” payment system with financial transparency and a governance framework must be in place when adopting cryptocurrencies.
“It is really important to not see such things as a panacea” for the challenges that countries face, he said.
The Central African Republic has become the second country in the world to adopt bitcoin as official currency after El Salvador, which did so last year.
The CAR is one of the planet’s poorest and most troubled nations, locked in a nine-year-old civil conflict and with an economy heavily dependent on mineral extraction, much of which is informal.
It is among six central African countries that share the CFA franc — a regional currency that is backed by France and pegged to the euro.
The office of CAR President Faustin Archange Touadera said Wednesday that lawmakers passed bitcoin legislation and that he had signed it into law.
Touadera’s chief of staff, Obed Namsio, said Wednesday that the move “places the Central African Republic on the map of the world’s boldest and most visionary countries.”
The IMF had heavily criticised El Salvador’s adoption of the cryptocurrency last year, warning of “large risks associated with the use of bitcoin on financial stability, financial integrity, and consumer protection”.
Other countries have already initiated legislative processes to adopt bitcoin, according to the specialised site Coinmarketcap.com.
Bitcoin’s value has swung wildly, soaring by 150 percent last year to reach a record $68,991 before falling sharply in recent months. It was worth almost $40,000 on Thursday.
The war in Ukraine will weigh heavily upon economic growth in the eurozone, the IMF said Tuesday, as the conflict wreaks havoc on energy prices and the manufacturing sector.
The International Monetary Fund revised down its eurozone growth forecast for 2022 to 2.8 percent from 3.9 percent in its January estimate, with the region’s biggest economy, Germany, taking a heavy hit.
“The main channel through which the war in Ukraine and sanctions on Russia affect the euro area economy is rising global energy prices and energy security,” the IMF said in its World Economic Outlook report.
The war has hurt some countries like Italy and Germany more than other European nations because they had “relatively large manufacturing sectors and greater dependence on energy imports from Russia”, the IMF said.
Germany’s economy is now expected to grow by 2.1 percent this year, down from the previous forecast of 3.8 percent. Italy will also drop, with growth of 2.3 percent compared to an earlier forecast of 3.8 percent.
After Moscow’s invasion in February, the West, including eurozone countries, imposed sanctions on Russia’s financial system, aviation sector and other major parts of the economy.
Nearly two months later, prices are rising. Oil remains above $100 a barrel after reaching historic highs in March, while the price of gas, wheat, aluminium, nickel and other raw materials have soared.
As a result, consumer price inflation in the eurozone has surged to 7.5 percent, an all-time high.
Pierre-Olivier Gourinchas, the IMF’s chief economist, said the forecast calls for a slowdown but no recession in the eurozone.
The main risk to the outlook is an escalation of sanctions, in particular an embargo on Russian gas, which would cause a “quite severe” slowdown over the short term in countries like Germany that depend most on those imports, Gourinchas told AFP in an interview in Washington.
As a result, “we would have a fairly significant downward revision of the economic forecasts for the eurozone.”
ECB holds steady
If domestic consumption and confidence decline, that could also slow growth, which would put the European Central Bank in a “tricky situation.”
The ECB last month slashed its growth forecast as well and warned inflation will soar in the eurozone area, but it has yet to follow the US Federal Reserve in raising interest rates to tame prices.
Gourinchas said, “For now, given the slowdown and the fact that inflation is concentrated in certain sectors… it is not necessary to start tightening monetary policy very quickly.”
The drag from the war in Ukraine comes as the eurozone economy was set to fully recover from the pummelling it took from the pandemic in 2020.
The IMF had predicted last October that eurozone growth would be 4.3 percent in 2022 before lowering the forecast in January due to a global supply chain crisis and the emergence of the Omicron variant of the coronavirus.
The IMF’s latest report also lowered the eurozone’s growth outlook for 2023 to 2.3 percent, down from 2.5 percent previously.
But it slightly increased its forecast for Germany to 2.7 percent next year. Italy’s growth, however, will slow further to 1.7 percent.
The IMF plans to raise at least $45 billion for a new trust to help “low-income and vulnerable middle-income countries” cope with protracted challenges like pandemics and climate change, it announced Wednesday.
According to the World Bank collection of development indicators, Nigeria is among lower-middle-income countries with a gross national income (GNI) per capita of $2,157 in 2019.
The Washington-based crisis lender’s Resilience and Sustainability Trust (RST) will come into effect May 1 and is in addition to a $650 billion boost to reserve assets called Special Drawing Rights (SDR) allocated earlier this year.
“As the world is confronting consecutive global shocks, we must not lose sight of the critical actions needed today to ensure longer-term resilience and sustainability,” IMF Managing Director Kristalina Georgieva said in a statement announcing the new trust.
She added that the goal of the trust is to redistribute funds from wealthier countries to more vulnerable ones as members look to support global economic recovery from the Covid-19 pandemic.
Around three-quarters of the IMF’s 190 members will be eligible to borrow from the new tool, it estimates.
First proposed last year, the RST will offer extended repayment periods, with a 20-year maturity and 10-year grace period.
In order to access the money, member countries will need “a package of high-quality policy measures,” have sustainable debt, and “adequate capacity to repay,” the IMF said.
It added that the trust will require close collaboration with the World Bank and other international financial institutions.
“The RST will amplify the impact of the US$650 billion SDR allocation implemented last year by chaneling resources from economically stronger members to countries where the needs are greatest,” said Georgieva.
The increase was the biggest ever for SDRs, which are international reserve assets that aid governments in protecting their financial reserves against global currency fluctuations and also help the IMF calculate loans and interest rates.
The IMF announced an agreement Tuesday to boost an existing financing package for Moldova by $267 million to help the country deal with the fallout from the war in neighboring Ukraine.
The deal reached with IMF staff would provide about $149 million immediately, and add to the 40-month, $558 million program agreed in December. It is subject to approval by the board of the global crisis lender.
“The war in Ukraine has resulted in significant spillovers to the Moldovan economy,” Ruben Atoyan, who led the IMF team, said in a statement.
“This additional financial support will help meet the urgent balance of payments financing needs arising from large adverse shocks, including the war in Ukraine and international sanctions on Russia and Belarus,” he said.
Moldova — one of Europe’s poorest nations — is dealing with an influx of refugees displaced by the fighting, as well as rising food and energy prices that are contributing to a growing budget deficit, the official said.
World Bank President David Malpass earlier Tuesday announced that donors had approved $100 million for the country through the bank’s concessional lending arm.
A donor conference last week in Berlin agreed to provide a total of 659.5 million euros ($720.7 million) in direct financial support.
Nigeria and 72 other countries are at high risk of debt distress, the International Monetary Fund has said in a new report.
The report titled ‘Restructuring Debt of Poorer Nations Requires More Efficient Coordination’ was published on Thursday.
“Low-income countries face fewer debt challenges today than they did 25 years ago, thanks in particular to the Heavily Indebted Poor Countries initiative, which slashed unmanageable debt burdens across sub-Saharan Africa and other regions,” said the global financial institution.
“Although debt ratios are lower than in the mid-1990s, debt has been creeping up for the past decade and the changing composition of creditors will make restructurings more complex.
“Improvements to the Group of Twenty Common Framework for Debt Treatments—from which the 73 countries that were eligible for the G20 Debt Service Suspension Initiative (DSSI) in 2020-21 can now benefit—could clear a path through this increasing creditor complexity.
“So far, only a handful of countries have requested to use the common framework, which was launched in November 2020, underscoring the need for change to build confidence and encourage participation at a pivotal moment for heavily indebted low-income countries.”
IMF stated that the debt ratios of DSSI countries have increased, partly reversing a decline seen in the early 2000s. it added that this was spurred by low-interest rates, high investment needs, limited progress in raising additional domestic revenue, and stretched systems for managing public finances.
It said the economic shocks from the COVID-19 pandemic and the war in Ukraine were adding to the debt challenges faced by low-income countries, even as central banks begin to raise interest rates.
“About 60 per cent of DSSI countries are at high risk of debt distress or already in debt distress—when a country has started or is about to start a debt restructuring, or when a country is accumulating arrears,” the report added.
“Among the 41 DSSI countries at high risk of or in debt distress, Chad, Ethiopia, Somalia (under the HIPC framework), and Zambia have already requested a debt treatment. Around 20 others exhibit significant breaches of applicable high-risk thresholds, half of which also have low reserves, rising gross financing needs, or a combination of the two in 2022.
“On the domestic side, difficult trade-offs will exist between the need to restructure sovereign debt owed to domestic banks, in some cases, and the impact of such restructurings on financial sector stability and the capacity of domestic banks to finance growth.”
According to the financial institution, local currency debt for the median DSSI country doubled from seven per cent of Gross Domestic Product (GDP) in 2010 to 15 per cent in 2021.
It stated that for those DSSI countries with market access, the share more than tripled from eight percent to 28 per cent in 2021.
“Many of these DSSI countries have also experienced a tightening of sovereign-bank links, with larger holdings of domestic sovereign debt at domestic banks.”
On the way forward, IMF recommended putting in place mechanisms that ensure coordination and confidence among creditors and debtors.
It added that improvements to the G20 Common Framework could play an important role by ensuring broad participation of creditors with fairer burden-sharing.
“Experience so far shows that greater clarity on restructuring steps, earlier engagement of official creditors with the debtor and with private creditors, a standstill in debt service payments during negotiations, and specifying the mechanics of comparability of treatment, is still needed.
“Strengthening debt management and debt transparency should also be priorities. This would help countries manage debt risks, reduce the need for debt restructurings, and facilitate a more efficient and durable resolution if debt becomes unsustainable.
“It is in the interest of debtor countries as well as their creditors that debt restructurings, where necessary, are accomplished speedily, smoothly, and efficiently. This would support global stability and prosperity, too,” the financial institution proposed.
The IMF will send staff to Lebanon and Tunisia this month to further discussions on new financial aid programs for the countries, a fund spokesman said Thursday.
The governments have been seeking support for their troubled economies for months but have yet to reach an agreement with the Washington-based crisis lender.
Talks with Lebanon on aid to address the severe financial challenges are “progressing well,” IMF spokesman Gerry Rice told reporters.
But “extensive work is needed, he said. “Lebanon’s challenges are deep and complex they will require time and commitment.”
In 2020, Lebanon defaulted on its sovereign debt for the first time in its history.
The IMF launched negotiations last month on a program to help pull the Middle Eastern country out of its economic crisis, which has seen the currency collapse, inflation hit triple-digit levels and poverty climb.
Rice said fund staff will also meet again this month with Tunisian authorities and seek to build on the “good progress that has been made in understanding their reform policies.”
The North African nation in mid-November requested an IMF loan program for an economy plagued by low growth as well as high public debt, inflation and unemployment.
President Kais Saied sacked the government and suspended parliament on July 25 last year, and the requested IMF bailout would be the fourth since Tunisia’s revolution.
Ukraine’s government continues to function, the banking system is stable and debt payments are viable in the short term, but the Russian invasion could plunge Ukraine into a devastating recession, the International Monetary Fund said Monday.
And it warned that the war could have broader repercussions, including threatening global food security due to rising prices and the inability to plant crops, especially wheat.
At a minimum the country would see “output falling 10 percent this year assuming a prompt resolution of the war,” the IMF said in an analysis of the economy in the wake of the Russian invasion.
But the fund warned of “massive uncertainty” around the forecasts, and if the conflict is prolonged, the situation will worsen.
Citing wartime data for conflicts in Iraq, Lebanon, Syria and Yemen, the IMF said the “annual output contraction could eventually be much higher, in the range of 25-35 percent.”
The country’s economy grew 3.2 percent in 2021 amid a record grain harvest and strong consumer spending.
But in the wake of the Russian invasion on February 24, “the economy in Ukraine dramatically changed,” said Vladyslav Rashkovan, alternate executive director for Ukraine on the IMF board.
“As of March 6, 202 schools, 34 hospitals, more than 1,500 residential houses including multi-apartment houses, tens of kilometers of roads, and countless objects of critical infrastructures in several Ukrainian cities have been fully or partially destroyed by Russian troops,” the official said in a statement.
Ports and airports also have been closed due to “due to massive destruction,” he said.
Oleg Ustenko, economic adviser to Ukraine’s President Volodymyr Zelensky, last week estimated the damage at $100 billion so far.
– ‘Hunger in Africa’ –
Despite the extensive damage, the government and the country have continued to function.
“Banks are open, working even during the weekends,” Rashkovan said in the statement dated March 9.
As of March 1, the country held foreign reserves of $27.5 billion, “which is sufficient for Ukraine to meet its commitments,” he said.
The IMF, which last week approved a $1.4 billion emergency aid program for the country, said given large reserves and significant financial support “debt sustainability does not appear to be at risk” in the short term, although there are “very large” uncertainties.
Beyond the human and economic losses in Ukraine, the IMF cautions about the spillovers from the war to the global economy.
Since the conflict began, the prices of energy and agriculture have soared and the fund warned they could worsen, fueling rising inflation.
“Disruptions to the spring agriculture season could also curtail exports and growth and imperil food security,” the report said.
Ukraine and Russia, considered the “breadbasket of Europe,” are among the largest wheat exporters in the world. Most Ukrainian wheat is exported in summer and autumn.
The initial impact will be on prices, which would also push prices of other food like corn higher, according to the IMF.
But an extended conflict could hit supplies if farmers are unable to plant.
“War in Ukraine means hunger in Africa,” IMF Managing Director Kristalina Georgieva said Sunday on CBS.
The UN World Food Program in a report Friday cautioned that “Export disruptions in the Black Sea have immediate implications for countries such as Egypt, which heavily rely on grain imports from Russia and Ukraine.”
And countries that rely heavily on imported grain will also feel the pain, including “hunger hotspots such as Afghanistan, Ethiopia, Syria and Yemen.”
The World Bank announced Tuesday that it is preparing a $3 billion aid package for war-torn Ukraine, which will include at least $350 million in immediate funds.
The first tranche of the aid “will be submitted to the Board for approval this week, followed by $200 million in fast-disbursing support for health and education,” World Bank President David Malpass said in a joint statement with IMF Managing Director Kristalina Georgieva.
The International Monetary Fund and World Bank in recent days had pledged to provide further support to Ukraine and have moved quickly to put that promise into motion.
The IMF, which has an ongoing $2.2 billion financing program with the country through June, will consider the country’s latest request for emergency financing “as early as next week,” the statement said.
The leaders of the global crisis lenders deplored Russia’s invasion of its neighbor and the impact it is having on the people and economy.
“We are deeply shocked and saddened by the devastating human and economic toll brought by the war in Ukraine,” they said, noting the “significant spillovers to other countries” including higher commodity prices that “risk further fueling inflation.”
In addition, the economic sanctions imposed on Russia “will also have a significant economic impact.”
The Group of Seven finance ministers and central bankers met early Tuesday and promised to mobilize support for Kyiv while considering additional measures to further isolate Moscow.
Oil prices have soared to over $106 a barrel on Tuesday as the fighting intensified and hundreds of thousands of people fled Ukraine.