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The IMF is disbursing its first-ever wartime loan to Ukraine

More than a year after Russia’s invasion, Ukraine is getting a helping hand from the IMF.

The Ukrainian authorities and the IMF yesterday (Mar. 21) reached a staff-level agreement for a new 48-month Extended Fund Facility (EFF) arrangement for 11.6 billion Special Drawing Rights (SDR), the monetary reserve currencies created by the IMF, which translates to around $15.6 billion.

This tranche “aims to support the Ukrainian authorities anchor policies that sustain fiscal, external, price and financial stability, and support the ongoing gradual economic recovery, while promoting long-term growth in the context of post-war reconstruction and Ukraine’s path to EU accession.”

The funding lifeline was the outcome of talks held between March 8-15 in Warsaw, where IMF and Ukraine officials laid out the blueprint for a four-year economic program. The funding, which according to Bloomberg is the first to be disbursed to a war-stricken nation, is subject to approval by the IMF’s Executive Board.

Quotable: Restoring Ukraine’s economy

“The overarching goals of the authorities’ program are to sustain economic and financial stability in circumstances of exceptionally high uncertainty, restore debt sustainability, and support Ukraine’s recovery on the path toward EU accession in the post-war period. The program has been designed in line with the new Fund’s policy on lending under exceptionally high uncertainty, and strong financing assurances are expected from donors, including the G7 and EU.” -Gavin Gray, the IMF mission chief for Ukraine,

Person of interest: Gavin Gray

Gavin Gray, the IMF mission chief for Ukraine, has experience in dealing with war-torn nations. Between 2018 and 2020, he was the mission chief for Iraq.

War-torn Ukraine’s economy, by the digits

30%: How much Ukraine’s economic activity contracted in 2022, according to the IMF

-3% to +1%: IMF staff’s prediction for Ukraine’s real GDP from 2023

$55 billion: How much international financial support Ukrainian president Volodymyr Zelenskyy appealed for in October 2022—$38 billion to cover next year’s estimated budget deficit, and $17 billion to rebuild critical infrastructure, including schools, housing, and energy facilities.

2% to 25%: Share of Ukrainians living in poverty before and one year after Russia’s invasion, according to World Bank vice president Anna Bjerde

$540 billion: Bjerde’s estimate for the minimum cost of fully restoring Ukraine

€18 billion ($19.4 billion): European Council’s support package for Ukraine for 2023 to help the country “keep on paying wages and pensions and maintain essential public services running, such as hospitals, schools, and housing for relocated people,” as well as “ensure macroeconomic stability, and restore critical infrastructure destroyed by Russia in its war of aggression, such as energy infrastructure, water systems, transport networks, roads and bridges.”

$75 billion: How much funding the US has directed so far in assistance to Ukraine, including humanitarian, financial, and military support, according to the Kiel Institute for the World Economy. A large chunk—$46 billion—has been military aid.

Charted: Ukraine is among IMF’s top debtors

Will Russia pay Ukraine damages?

The UN general assembly in November called for Russian reparations for the damages and deaths caused by the invasion. The resolution isn’t legally binding, though, and Russia is opposed to it.

If Russia did pay up, it wouldn’t be unprecedented. At the end of World War I, the German Reich was deemed guilty and made to pay, according to the Treaty of Versailles, more than 200 billion gold marks over decades. Some experts say that decimated the economy and even led to World War II. At the end of the second world war, Germany and other axis powers were made to pay reparations, but this time the narrative wasn’t about shouldering blame. It was more about helping rebuild damaged infrastructure in Europe.

More recently, in the early 90s, Iraq had to pay reparations for the occupation of Kuwait—although this was a consequence of a legally-binding UN Security Council resolution.

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