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Friday, June 9, 2023

Ukraine receives the first IMF loan for a country at war

The International Monetary Fund (IMF) has announced that it has reached a US$15.6 billion (£12.8 billion) financing agreement with Ukraine.

The organization’s first loan to a belligerent nation is expected to be approved in the coming weeks.

It would also be one of the most extensive financial packages Ukraine has received since invading Russia.

The IMF recently changed the rules to allow loans to countries facing “very high levels of uncertainty.”

“Russia’s invasion of Ukraine continues to have a devastating impact on the economy: activity will fall by 30 percent in 2022, much capital will be destroyed, and poverty levels will increase,” IMF official Gavin Gray said in a statement.

“The program was designed under very high uncertainty, in line with the new lending fund policy, and strong funding guarantees are expected from donors, including the G7 and the European Union.”

Without elaborating, Mr. Gray also said the deal would mobilize “large-scale concessional funding” for Ukraine from international donors and partners. The funding has yet to be approved by the IMF’s Executive Board.

The IMF expects Ukraine’s economy to shrink or grow slightly this year.

Ukrainian Prime Minister Denis Shmykhal said the funding would help the country “finance all important expenses, ensure macroeconomic stability and strengthen our interactions with other international partners.”

US Treasury Secretary Janet Yellen, who visited Ukraine last month, said: “An ambitious and timely IMF program is critical to supporting Ukraine’s reform efforts.”

The US is the largest shareholder in the IMF and the largest donor to Ukraine regarding funds spent.

Earlier this year, President Joe Biden announced nearly half a billion more dollars in US military aid to Ukraine. That’s on top of the $112 billion Congress spent in 2022 alone.

Military aid, which accounts for over half of US spending on Ukraine, funds drones, tanks, missiles, and other munitions systems, training, logistics, and intelligence support.

Money has continued to flow into the conflict from around the world since Russia invaded Ukraine last February.

The IMF said its Executive Board had approved rule changes last week to allow funding for countries facing “very high levels of uncertainty.”

Without naming Ukraine, the measure applies to countries experiencing “exogenous shocks beyond the control of state authorities and the reach of its economic policies.”

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