April 21, 2022
We are here today to demonstrate our firm commitment to support Ukraine in its hour of need.
Russia’s invasion of Ukraine is first and foremost a human tragedy that has brought unimaginable human suffering to ordinary men, women, and children. Thousands have been killed or injured. Millions have been forced from their homes. They are foremost in our thoughts.
It is also devastating for the Ukrainian economy. The losses of physical infrastructure and human capital are already huge and will lead to a deep recession this year. On Tuesday this week, the IMF published itsWorld Economic Outlook that projects Ukraine’s GDP to shrink by almost 40 percentage points.
This underlines the importance of our shared determination to help the government and people of Ukraine meet the steep economic challenges they face.
First , let me reiterate what we have been saying from Day 1: the emergency economic and financial policy response by the Ukrainian authorities has been remarkable.
They have acted decisively to preserve the availability of foreign exchange reserves and reduce exchange rate uncertainty. They have supported financial stability and protected priority budget payments. And they ensured that people in Ukraine can still access the services and the cash they need.
In the midst of the invasion, these actions have helped avoid the economic shocks that often accompany wars, such as hyperinflation and currency devaluation.
My second point is the importance of external finance in supporting these actions, including from bilateral donors and the multilateral institutions like the World Bank.
The IMF has played its part—through a $1.4 billion Rapid Financing Instrument that was agreed less than two weeks after the invasion. And last week we established an Administered Account for Ukraine that will provide donors with a secure vehicle to direct financial assistance to Ukraine. Here, I would like to thank Canada, whose recent federal budget proposed up to CAD 1 billion be disbursed to Ukraine through the Administered Account.
It is financing like this—together with careful controls on cross-border operations since February 24—that has kept the central bank’s foreign exchange reserves stable relative to the pre-war level. On the fiscal side, it has supplemented domestic revenues without excessive recourse to monetary financing.
But as important as these macroeconomic outcomes are, we should not be lulled into a sense that the biggest challenges are over.
This brings me to my final point —the needs now are huge, and the needs ahead will be greater still.
For as long as the war continues, demands on the budget will mount, especially as spending on security and conflict-related compensation inexorably rise.
Reserves will come under pressure. Capital outflows will increase with the relaxation of import restrictions necessary to allow the economy to reopen, while inflows shrink due to the likely decline in exports—particularly agricultural exports—in the face of damage inflicted on key infrastructure and the blockade of some of the export routes.
While subject to considerable uncertainty, we estimate that over the next 2-3 months some $5 billion a month may be needed simply to allow the government and the economy to continue to operate in the midst of the war.
So, more external financing is necessary—especially concessional funding and fast-disbursing grants.
Without additional support, the great efforts made by the Ukrainian authorities to maintain macroeconomic and financial stability—in the face of enormous shocks and terrible circumstances—will become even harder to sustain.
But while the focus now is very much on the priority of keeping the government and economy functioning, we also need to prepare for the future—and we know that reconstruction needs will be massive. It is right to start this conversation early, so the prospects of a vibrant economy are a source of inspiration for the Ukrainian people at their most difficult times.
Let me conclude.
As we have seen across our membership: peace nurtures prosperity, wars destroy development.
So, we must hope and pray for peace to come quickly—when it comes we pursue the opportunities it will bring to rebuild a strong and prosperous Ukraine.
For now, our support to Ukraine must allow the country to continue to function and face the challenges created by the war.
I am heartened by the response of the international community so far and I know you share my determination to ensure Ukraine receives the financial assistance it needs.