Ukraine has come under pressure from the IMF ahead of talks on a new loan package. The fund is insisting on a controlled devaluation of the hryvnia. This is reported by Bloomberg.
The IMF emphasizes the advantages of such a step, believing that devaluation can help strengthen the country’s financial system by increasing budget revenues denominated in hryvnia. At the same time, the National Bank of Ukraine opposes this proposal, pointing to the risks to inflation and public sentiment.
Differences in approaches to economic policy pose a threat to negotiations on a new loan package, while the war with Russia has been going on for four years. Ukraine has already received most of the $15.6 billion under the IMF program agreed in 2023. The parties are currently negotiating a new package, the volume of which could amount to about $8 billion.
Negotiations continued this week during the lender’s annual meeting in Washington, laying the groundwork for further staff-level talks next month. An IMF delegation plans to visit Kyiv to express support and strengthen Ukraine’s position on obtaining additional financing.
The currency issue remains one of the most acute. Devaluation could potentially increase nominal budget revenues through export contracts in foreign currency. However, the National Bank believes that the benefits of such a decision will be limited, since the main revenues to the budget are provided by international aid. In turn, devaluation could cause inflation to rise, which would destroy fiscal reserves.
In addition, there are political risks. Ukrainian leaders have traditionally been wary of devaluation, and citizens are particularly sensitive to price fluctuations, which have repeatedly accompanied financial crises before the war. According to sources, in the context of a protracted conflict and growing public fatigue, the authorities are unlikely to take such a step.
