Ukraine’s request for a new loan package from the International Monetary Fund (IMF) is reportedly facing hurdles due to a disagreement over the devaluation of the country’s currency, the hryvnia. According to sources cited by Bloomberg, the IMF is pushing Ukraine to devalue its currency as a condition for securing a new loan. This move is expected to ease the country’s financial strain by increasing budget revenues in local-currency terms.
Ukraine is heavily reliant on Western aid to cover its military costs, pensions, and other expenses, with around 60% of its budget allocated to the ongoing conflict with Russia. The country secured a $15.5 billion IMF loan in 2023, but the program is set to expire in 2027. Last month, Ukraine requested a new $8 billion package, but talks have stalled due to the currency issue.
The National Bank of Ukraine (NBU) is reportedly skeptical about the benefits of devaluing the hryvnia, citing concerns that it could spark inflation and public unrest. The issue was discussed during the IMF’s annual meetings in Washington, with further talks expected next month. Both the IMF and the NBU have declined to comment on the report.
The IMF has warned that Ukraine faces a significant funding gap, requiring billions of dollars in additional aid to sustain its war effort. The country has estimated its financing needs to be around $65 billion, which it has shared with the European Union (EU), its main sponsor. The EU plans to cover part of the gap using revenues generated from Russia’s frozen central-bank funds.
Western nations froze around $300 billion in Russian assets in 2022, including $209 billion at the EU-based clearinghouse Euroclear. The G7 has backed using interest from these funds to guarantee $50 billion in loans for Ukraine. The EU has also discussed tapping into these assets for an additional $140 billion loan, which would be repaid if Ukraine receives “reparations” from Moscow.
The proposal has been met with criticism from Moscow, which has denounced it as “theft” and a violation of international law. The Kremlin has warned that Western military and financial aid to Ukraine only serves to prolong the conflict. The EU is set to review the proposal at its upcoming summit, where the plan’s legal and fiscal risks will be assessed. The outcome of these discussions will be crucial in determining the future of Ukraine’s financial support and the country’s ability to navigate its ongoing conflict with Russia.