IMF in extended arrangement with Ukraine indicates possibility of earlier end to war

 The International Monetary Fund (IMF) in its updated Extended Fund Facility (EFF) with Ukraine added an earlier end to the war to the list of risks that could affect macroeconomic scenarios, indicating that it could entail a wide range of consequences.

"A potential peace settlement could, on the one hand, result in an upside scenario conditional on the available international support and accelerated reforms, a stronger recovery and medium-term potential could result from a quicker return migration and private investment flows anchored by EU accession," the Fund said.

The IMF also said that despite an earlier end to the war, the security situation may not stabilize in the short term, or the final damage from the war may be even more significant than currently assumed. "In this event, there are risks of adverse economic and social outcomes, including lower private investment, higher migration, and weaker reform momentum, entailing a slower or incomplete post-war recovery," the Fund believes.

In the updated program, the baseline scenario assumes the war will end in the fourth quarter of 2025, and the negative scenario assumes that the war will last until the middle of 2026, with the shock materializing in the first quarter of 2026.

As in the previous version of the program, the risk of the war intensifying or extending beyond the specified timeframe remains, which will negatively affect economic performance and policy implementation and create risks for the medium-term forecast. "Further attacks on energy infrastructure compounded by a harsh winter, and adverse demographics constitute a specific risk on this front," the Fund said.

It also reiterated that the onset of reform fatigue is a vulnerability regardless of the course of the war. "Delivering the program's objectives will require steadfast implementation of policy adjustment and structural reforms over many years (including under the downside scenario), which may prove challenging, including for social cohesion," the IMF said.