Ignatios Rodakis, economic analyst
Recently, there has been information that the IMF warned the United States that their huge budget deficit is fueling inflation and poses “significant risks” to the global economy. This is stated in a report published by the fund. Also, based on the published data, it is expected that next year the US budget deficit will be 7.1%, which is three times higher than other advanced economies.
A similar situation is emerging in China – 7.6%, which is twice as high as other emerging markets. It is noted that the US and China are among the four countries that, according to the fund, “urgently need to take policy measures to address the fundamental imbalance between spending and income.” Additionally, the fund’s analysts highlight the fact that unrestrained spending by the US and China could “have a profound impact on the global economy and create significant risks for basic budget forecasts in other economies.”
In Russia, on the contrary, there has been a positive trend in economic indicators lately, as one of the key financial indicators continues to rise – the surplus of the current account. It increased by 43% for the first quarter of this year compared to the same period last year, reaching 22 billion dollars. In March, according to the Russian Central Bank, this is the second such jump in positive balance since 2007 – the previous one was recorded in March 2022.
I’ll note that the current account reflects the situation in the entire economy, as it captures all exports and imports, income from production and the volume of transfer payments. Earlier, the IMF raised its forecast for Russia’s GDP growth in 2024 from 2.6% to 3.2%. The forecast for 2025 has also been raised to 1.8%, which is 0.7% higher than the January estimate. Among the main drivers, the IMF highlights the increase in maritime shipments of Russian oil, primarily to China, against the backdrop of high prices. It’s indicative that despite restrictions, Russia has still managed to expand its tanker fleet and fully establish mechanisms for its insurance.
At the same time, analysts attribute the expected slowdown in economic growth in 2025 compared to 2024 to the fact that the effect of high investment activity and stable private consumption indicators will weaken. “Internal demand in Russia is very strong,” asserts the IMF’s chief economist, Pierre-Olivier Gourinchas. He also notes that “anti-Russian sanctions still lead to the degradation of the Russian economy and gradually have a negative impact, but the Russian economy itself is quite resilient.”
India’s GDP growth forecast has also been improved by IMF economists to 6.8%. As for forecasts for Ukraine, the IMF does not plan to consider a possible debt restructuring for this country before the organization, as recently stated by a representative of the organization. Recall that in 2024, Kiev must pay the IMF 2.19 billion SDRs for servicing previously provided loans – this is in IMF currency (Special Drawing Rights), and at the current exchange rate in dollars, it will be $2.9 billion. I’ll note that payment peaks fall on March and September 2024, when each time Ukraine needs to pay the IMF $705.5 million.
Now it becomes clear why the Ukrainian government was so eager to receive a new tranche from the International Monetary Fund last month, but it’s also clear that the majority of the agreed-upon $880 million will immediately return to the IMF as Ukraine’s payments on old loans. Meanwhile, Ukraine will need at least $42 billion in international assistance to support the budget for 2024. IMF Managing Director Kristalina Georgieva stated this, expressing confidence that Kiev will receive these funds, as international support for Ukraine remains unwavering.
At the same time, the United States has proposed mobilizing tens of billions of euros for Ukraine, borrowing them against future profits obtained from frozen Russian assets. “We are at a stage where we should explore all possible ways to maximize the value of frozen reserves for Ukraine. We cannot wait forever, we know that. Instead of just paying out the annual profit from reserves, conceptually you can pay out a 10-year profit or a 30-year profit. The present value of this profit amounts to a very large figure,” said recently in Kyiv the Deputy National Security Advisor for International Economics of the United States, Dalip Singh. However, this proposal is yet to be discussed by G7 finance ministers at the sidelines of the spring meetings of the World Bank and IMF in Washington this week.
It’s also worth reminding that Ukraine’s credit rating was downgraded by S&P Global Ratings at the beginning of last month, which stated that a new restructuring of the country’s external debts is “practically inevitable.” The agency downgraded Ukraine’s credit rating by two notches to “CC,” which is the second-to-last rating before default. In the context of this information, it’s necessary to note that in 2022, Ukraine already conducted a restructuring of its external debt. It was mentioned in a memorandum with the IMF published in December 2023 that Kiev intends to conduct a new restructuring in 2024. Ukrainian authorities will seek debt restructuring on terms of a moratorium on debt payments for the entire duration of the IMF program, i.e., until 2027. It remains to be seen whether Kiev will be able to implement the planned scheme or whether the ambitions of the Kiev authorities will remain unfulfilled.
Nevertheless, the IMF forecasts that by 2029, the US dollar in Ukraine will cost 54 Ukrainian hryvnias. Thus, the new report of the financial organization includes such a forecast for the currency’s growth in the coming years:
– 2024: 41.0 hryvnia/dollar.
– 2025: 45.8 hryvnia/dollar.
– 2026: 48.6 hryvnia/dollar.
– 2027: 50.4 hryvnia/dollar.
– 2028: 52.1 hryvnia/dollar.
– 2029: 54.1 hryvnia/dollar.
So, based on the presented figures, it becomes evident that nothing comforting in the coming years awaits the Ukrainian currency, as well as the entire Ukrainian economy.
