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IMF Says Staff Agreement with Ukraine Could Allow $900 Mln Disbursement

The Parkovyi footbridge spanning over Dnieper river is illuminated in the evening in Kyiv, Ukraine, 10 November 2023, amid the Russian invasion. EPA/SERGEY DOLZHENKO
The Parkovyi footbridge spanning over Dnieper river is illuminated in the evening in Kyiv, Ukraine, 10 November 2023, amid the Russian invasion. EPA/SERGEY DOLZHENKO
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IMF Says Staff Agreement with Ukraine Could Allow $900 Mln Disbursement

The Parkovyi footbridge spanning over Dnieper river is illuminated in the evening in Kyiv, Ukraine, 10 November 2023, amid the Russian invasion. EPA/SERGEY DOLZHENKO
The Parkovyi footbridge spanning over Dnieper river is illuminated in the evening in Kyiv, Ukraine, 10 November 2023, amid the Russian invasion. EPA/SERGEY DOLZHENKO

The International Monetary Fund on Friday announced a staff-level agreement with Ukraine on updated economic and financial policies, paving the way for a $900 million disbursement from its $15.6 billion lending program once approved by the board.
According to Reuters, the global lender said its executive board was expected to consider the agreement in coming weeks.
It said Ukraine met all quantitative performance criteria set for the end of June, and indicative targets for the end of September, as well as most of the structural benchmarks set under the IMF's Extended Fund Facility program.
The IMF said the Ukrainian economy continued to show "remarkable resilience" despite Russia's invasion in February 2022, and said recent economic developments pointed to a stronger-than-expected economic recovery in 2023 and continued growth in 2024, as well as substantial disinflation.
"Program performance has been broadly on track despite the extremely challenging backdrop," Gavin Gray, the IMF official who led discussions with Ukrainian officials in Poland from Nov. 6-10, said in a statement.
He said IMF staff had upgraded their forecast for real GDP growth in 2023 to 4.5% from the previous range of 1% to 3%, but expected growth to soften to a range of 3% to 4% in 2024.
“The war in Ukraine continues to have a devastating impact on the population and the economy as attacks on critical infrastructure and air strikes continue countrywide," he said.
Gray said Ukraine's fiscal deficit remained very high, reflecting the economic and social cost of the war, which left it with large, ongoing financing needs.

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IMF Says Global Public Debt to Top $100 Trillion, Growth May Accelerate

Motorists commute as a construction site is seen in Beijing on October 12, 2024. (AFP)
Motorists commute as a construction site is seen in Beijing on October 12, 2024. (AFP)
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IMF Says Global Public Debt to Top $100 Trillion, Growth May Accelerate

Motorists commute as a construction site is seen in Beijing on October 12, 2024. (AFP)
Motorists commute as a construction site is seen in Beijing on October 12, 2024. (AFP)

The world's total public debt is set to exceed $100 trillion this year for the first time, and may grow more quickly than forecast as political sentiment favors higher spending and slow growth amplifies borrowing needs and costs, the International Monetary Fund said on Tuesday.

The IMF's latest Fiscal Monitor report showed global public debt will reach 93% of global gross domestic product by the end of 2024 and approach 100% by 2030. That would exceed its 99% peak during COVID-19. It would also be up 10 percentage points from 2019, before the pandemic exploded government spending.

Released a week before the IMF and World Bank hold annual meetings in Washington, the Fiscal Monitor said there are good reasons to believe future debt levels could be well higher than currently projected, including a desire to spend more in the US, the world's largest economy.

"Fiscal policy uncertainty has increased, and political red lines on taxation have become more entrenched," the IMF said in the report. "Spending pressures to address green transitions, population aging, security concerns, and long-standing development challenges are mounting."

CAMPAIGN SPENDING PROMISES

The IMF's concerns about rising debt levels comes three weeks before a US presidential election in which both candidates have promised new tax breaks and spending that could add trillions of dollars to federal deficits.

Republican presidential candidate Donald Trump's tax cut plans would add some $7.5 trillion in new debt over 10 years, more than twice the $3.5 trillion added from the plans of Vice President Kamala Harris, the Democratic nominee, according to the central estimates the Committee for a Responsible Federal Budget (CRFB), a budget think-tank.

The report finds that debt projections tend to underestimate actual outcomes by sizeable margins, with realized debt to GDP ratios five years ahead averaging 10% higher than originally forecast.

And debt could be further increased significantly by weak growth, tighter financing conditions and greater fiscal and monetary policy uncertainty in systemically important economies such as the US and China. The report includes a "severely adverse scenario" involving these factors that shows global public debt could reach 115% in just three years, 20 percentage points higher than currently projected.

SPENDING BRAKES

The IMF repeated its calls for more fiscal consolidation, saying the current environment with solid growth and low unemployment was an opportune time to do so. But it said current efforts, averaging 1% of GDP over the six years from 2023 to 2029, are insufficient to reduce or stabilize debts with a high probability.

A cumulative tightening of 3.8% would be needed to achieve this goal, but in the US, China, and other countries where of GDP is not forecast to stabilize, substantially greater fiscal tightening would be needed.

The US this month is expected report a fiscal 2024 deficit of about $1.8 trillion, or more than 6.5% of GDP, according to the Congressional Budget Office.

It said the US and other countries where debt is projected to keep growing, including Brazil, Britain, France, Italy and South Africa, could face costly consequences.

"Postponing adjustment will only mean that a larger correction is needed eventually, and waiting can also be risky, because past experience shows that high debt and lack of credible fiscal plans can trigger adverse market reactions and can limit the room that countries have to deal with future shocks," said Era Dabla-Norris, the IMF's deputy fiscal affairs director.

She said cuts in public investment or social spending, tend to have a much larger negative impact on growth, than more poorly targeted subsidies such as for fuel. Some countries have room to broaden their tax bases and improve the efficiency of tax collections, while others can make their tax systems more progressive by taxing capital gains and income more effectively, Dabla-Norris said.