The IMF has released its updated macroeconomic forecast for Ukraine as part of the revised Memorandum. The key assumption regarding the duration of the war remains unchanged, but its economic impact has turned out to be more severe than previously expected.
This was reported by Dengi.ua, citing Danylo Getmantsev.
What is the IMF’s Baseline Scenario for the End of the War?
In its baseline scenario, the IMF continues to assume that the war will end by the end of 2026. Under the negative scenario, hostilities will last longer, and the conflict will gradually transition into a frozen phase by the end of 2028.
According to Getmantsev, the revision of forecasts in both scenarios stems not from changes regarding war duration, but from its economic toll proving far harsher. Specifically, real GDP contracted by 0.6% year-over-year in the first quarter. The economy was under pressure from attacks on critical infrastructure, energy problems, and the military conflict in the Middle East, which led to higher fuel prices and complications in equipment deliveries.
What Is the EU’s Ukraine Support Loan and How Does It Affect Debt?
The most significant structural change is related to the EU’s Ukraine Support Loan. A total of €90 billion has been agreed upon for 2026–2027, of which €45 billion is expected in 2026. Formally, the instrument is a contingent debt obligation that is to be repaid once Ukraine receives reparations from Russia.
In the baseline scenario, the forecast for public debt at the end of 2026 has been reduced from 122.6% to 111.8% of GDP, and the general budget deficit, including grants, has been lowered from 18.4% to 11.3% of GDP. At the same time, the deficit excluding grants has, conversely, increased from 19.3% to 21.1% of GDP - the figures for debt and the overall budget deficit differ due to the method used to account for funds from the EU.
How Have the GDP and Inflation Forecasts for 2026 Changed?
Regarding the main changes to the macroeconomic forecast under the baseline scenario for 2026:
- The real GDP growth forecast was lowered from 1.8-2.5% to 1-1.6%. Household consumption, driven by wage growth, will be the main driver of the economy;
- The year-end inflation forecast was raised by 3 percentage points at once - from 7.5% to 10.5%. The IMF cites the sharp rise in global fuel prices as the main reason;
- The current account deficit, excluding grants, has been revised upward from $44.4 billion to $52.2 billion - primarily due to a more accommodative fiscal policy and higher energy import costs;
- International reserves are expected to reach $65.5 billion by year-end, supported by significant external inflows, particularly the budgetary portion of the Ukraine Support Loan.
What the IMF’s Negative Scenario for Ukraine Entails
In the negative scenario, the consequences are significantly more severe:
- GDP growth will be only 0.5% annually in 2026-2028;
- inflation will reach 12.5% in 2026;
- the budget deficit, excluding grants, will be 23.5% of GDP;
- the total need for additional financing will increase to $149.5 billion;
- reserves could shrink to approximately $47 billion by the end of 2029.
What Will Determine the Future Trajectory of Ukraine’s Economy
The IMF acknowledged that 2026 got off to a worse start than expected. At the same time, agreements with the EU have reduced the risk of a shortage of external financing.
Future developments will depend primarily on the course of the war. A protracted conflict, further damage to the energy sector, or delays in reforms could worsen the situation. Conversely, an early end to the war, reliable security guarantees, and faster implementation of reforms will contribute to a significantly more robust recovery for the country.
