Ukraine and International Financial Institutions

Ukraine and International Financial Institutions

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Updated January 4, 2023
Ukraine and International Financial Institutions
Russia’s war against Ukraine has devastated the Ukrainian
Selected IMF Activities
economy and is having widespread repercussions in Europe
The IMF is the major intergovernmental organization
and around the world. While the economic impact is largest
dedicated to international monetary cooperation and
in Ukraine, neighboring countries are suffering from trade
stability. A primary activity of the IMF is providing
disruptions; higher food, energy, and commodity prices;
financial assistance to countries during economic crisis,
and an influx of refugees. The World Bank, the
whether induced (e.g., poor management, inappropriate
International Monetary Fund (IMF), and other international
policies) or the result of external shocks. Ukraine has been
financial institutions (IFIs) are providing emergency
the recipient of IMF programs since 2015. Prior to Russia’s
assistance to Ukraine and neighboring countries and are
2022 invasion, the IMF had a $5 billion loan in place for
developing short- and medium-term assistance strategies.
Ukraine, which had been extended through June 2022. The
The United States government is supporting these efforts
lending program was approved in June 2020 to help
through U.S. leadership at the IFIs and through additional
authorities address the Coronavirus Disease 2019 (COVID-
bilateral contributions.
19) pandemic and implement various economic reforms.
On April 28, 2022, the Biden Administration requested new
Following the February 2022 invasion, Ukraine cancelled
FY2022 funding for IFIs as part of an emergency
its preexisting program and sought rapid IMF emergency
supplemental budget request for Ukraine, which was
assistance. On March 8, 2022, the IMF approved a $1.4
incorporated in H.R. 7691, which was signed into law on
billion assistance package to help Ukraine cope with the
May 21, 2022. The measure provided $500 million to the
economic shock of the Russian attack. In contrast to the
European Bank for Reconstruction and Development
IMF’s traditional lending, the March 2022 funding is
(EBRD) for its assistance efforts in Ukraine and countries
through an IMF Rapid Financing Instrument (RFI), which
impacted by the conflict in Ukraine.
provides faster assistance at lower interest rates to meet an
urgent crisis. The IMF’s executive board statement on the
Background: Economic Outlook
new funding expressed the board’s “strong support for the
in Ukraine
Ukrainian people.”
According to the World Bank, Ukraine’s economy is
forecast to be positive in 2023 after a sharp decline in 2022
In addition to short-term IMF lending, Ukraine is using its
(Table 1). Ukraine, however, remains dependent on foreign
allocation of Special Drawing Rights (SDRs), international
assistance. According to the IMF, Ukraine requires in 2023
reserve assets created by the IMF to supplement Ukrainian
$3-4 billion in monthly financial assistance from
official foreign exchange reserves. As part of a $650 billion
international partners, including the IFIs, to maintain
global allocation of SDRs in August 2021, Ukraine
necessary government functions amidst the ongoing
received $2.7 billion; Ukraine largely depleted these funds
conflict. This figure could escalate to $5 billion a month if
between August and December 2021.
the severity of the conflict intensifies.
At the request of Canada, and with the support of the
Table 1. Ukraine: Selected Economic Indicators
United States, the IMF established on April 8 a special
Annual percentage change, unless noted
account to allow individual countries to donate resources
(either as grants or loans) that would be disbursed into

2021
2022e
2023f
Ukraine’s account at the IMF. The so-called “administered
account” is designed to allow interested countries to pool
Real GDP Growth
3.4
-35.0
3.3
and channel resources to help Ukraine meet balance-of-
Inflation
10.0
30.0
20.0
payments and budget needs arising from the war and
support macroeconomic stability, while taking advantage of
Debt (% of GDP)
60.4
50.7
66.8
the IMF’s expertise and capacity. As of December 2022,
Exports (Goods and Services)
-5.8
-10.4
-60.0
four countries have disbursed $2.7 billion through this
account. In addition to Canada ($1.7 billion), they are
Imports (Goods and Services)
-6.4
12.7
-40.0
Germany ($1 billion), Netherlands ($200 million), and
Upper Middle Income Poverty
7.1
5.5
25.5
Belgium ($5 million).
Rate ($6.85 a day in 2017)
Another IMF option to support Ukraine and economies
Source: World Bank, Europe and Central Asia Economic Update,
affected by the crisis is the new Resilience and
Fal 2022.
Sustainability Trust (RST). The RST was created in spring
Notes: e = expected, f = forecast.
2021 in order to “help low-income and vulnerable middle-
income countries address longer-term structural challenges
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Ukraine and International Financial Institutions
that pose macroeconomic risks, including climate change
Selected European Bank for
and pandemics.” The United States and other advanced
Reconstruction and Development
economies have the option to reallocate their SDRs to trust
Activities
funds such as the RST or the Poverty Reduction and
The European Bank for Reconstruction and Development
Growth Trust (PRGT, another IMF fund focused on grants
(EBRD) was founded in 1991 to support the transition of
and low-interest loans to the poorest countries), where they
the former Soviet and eastern European economies to
can be utilized to fund assistance for low-income or crisis-
market-based economies. The EBRD announced a €2
afflicted countries. The RST, which the IMF hopes will
billion (about $2.2 billion) support package for the Ukraine
reach $50 billion, was created explicitly as a vehicle to
on March 9, 2022. According the Bank, funding will be
channel unused SDRs.
made available to support Ukrainian companies through
several mechanisms, such as deferred loans, liquidity
In the FY20223 budget, the Biden Administration is
support, and trade finance. Additional assistance is
requested legislative authority to lend up to $20 million of
expected to follow, including assistance for relocating
U.S. SDRs to the RST and the PRGT. The FY2023
Ukrainian companies and rebuilding the Ukrainian
Consolidated Appropriations Act (P.L. 117-328) did not
economy once the war ends.
provide any authorization for U.S. contributions to the RST
but did appropriate $20 million for the PRGT or RST. The
Ukraine is one of the EBRD’s largest borrowers, with
Administration had requested the necessary authorizations
lending (as of January 2023) of almost €18 billion ($19
last year, but they were not included in the FY2022
billion) in 524 projects since 199. The Biden
Consolidated Appropriations Act (P.L. 117-103), although
Administration requested $500 million for the EBRD in the
$102 million was appropriated for the PRGT.
FY2022 supplemental request, which became law on May
21 (H.R. 7691).
The ongoing conflict has complicated efforts to design a
Issues for Congress
full-scale IMF budget support program since the IMF’s core
lending instrument requires a debt sustainability analysis
Members of Congress have considered legislation related to
that is impossible to conduct in the middle of a conflict. In
Ukraine and IFIs in recent months. For example, H.R. 7081
lieu of a lending program, however, the IMF designed a
the Ukraine Comprehensive Debt Payment Relief Act was
new instrument in December 2022 called “Program
introduced in the 117th Congress. The legislations directed
Monitoring with Board Involvement (PMB)” for Ukraine.
(1) U.S. representatives at the IFIs to support the immediate
suspension of Ukraine’s debt payments
This 4-month program is aimed to stabilize Ukraine’s
and the Secretaries
finances by providing technical assistance on areas such as
of the Departments of the Treasury and State to help
tax collection, revenue management, and developing a
coordinate comprehensive debt relief for Ukraine from
financial sector strategy. IMF and Ukrainian officials hope
government and commercial creditors, among other efforts.
that the PMB will be a precursor to a new $15-$20 billion
While the legislation did not pass Congress, the United
IMF program later in 2023.
States and a group of major bilateral creditors agreed to
suspend debt service by Ukraine through the end of 2023.
Selected World Bank Activities
Looking ahead, Members might also seek legislation to
The World Bank focuses on poverty alleviation and
shield Ukraine from other holdout creditors.
economic development. As of December 20, 2022, the
Members might also consider supporting greater financial
World Bank has mobilized over $18 billion in financial
assistance for neighboring countries to help with the
support for Ukraine, the majority of which is through donor
refugee inflows and to mitigate the economic contagion
supported trust funds. According to the World Bank, the
from the conflict. Members may also debate efforts to
funds will help the government provide critical services to
isolate Russia at the IFIs. In the 117th Congress, for
the Ukrainian people, including wages for hospital workers,
example, H.R. 6891, the Isolate Russian Government
pensions for the elderly, and social programs for the
Officials Act of 2022, sought for the United States to lead
vulnerable. This package is in addition to the 11 ongoing
efforts to exclude Russian government officials from IFI
World Bank projects in Ukraine, in areas such as energy,
meetings. On March 1, 2022, EBRD directors began
education, and transportation networks.
procedures to suspend Russia’s and Belarus’s access to
EBRD finance, and on April 4, EBRD members approved
The World Bank also established a multidonor trust fund
an operational suspension of Russia’s access to EBRD
(MDTF) in March 2022 to facilitate channeling grant
resources. This required approval of members holding
resources from donors. The United States is the largest
three-quarters of EBRD voting power and two-thirds of all
donor to the MDTF, contributing $10.3 billion. Other
members. Going further, a senior European official, for
donors are Germany ($50 million), Spain ($48 million),
example, told Reuters that “there is on ongoing discussion
Finland ($21 million), Switzerland ($10.5 million),
to kick Russia out of all international financial institutions.”
Belgium ($3 million), and Iceland ($1 million). In
Such actions, some argue, would have little benefit to
December 2022, the World Bank announced its most recent
Ukraine and could undermine the institutions’ ability to
financing for Ukraine, $500 million for health care services
operate constructively in Russia if there is a change of
funded by a guarantee from the United Kingdom. A full list
government in the future.
of World Bank-related Ukraine financing is available at:
https://www.worldbank.org/en/country/ukraine/brief/world-
Martin A. Weiss, Specialist in International Trade and
bank-emergency-financing-package-for-ukraine.
Finance
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Ukraine and International Financial Institutions

IF12107

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