The Ukrainian economy is in dire straits, and charitable organizations lend a helping hand to the Ukrainian people.

(AFP)

[Financial Channel/Comprehensive Report] After Ukraine was invaded by Russia, its economy has almost stagnated. Last year, its GDP plummeted by 30%. The ballooning budget deficit forced the country’s central bank to print billions of hryvnias (Ukrainian currency). In response to temporary funding needs, the IMF recently received a financial assistance of up to US$15.6 billion.

Economists believe that the IMF's financial assistance is not interest-free, and with the addition of administrative costs, the loan interest rate that Uzbekistan needs to bear is as high as 7.5-8%, which may increase Uzbekistan's financial pressure.

The Economist reported that the IMF approved a financial aid of US$15.6 billion to Ukraine, which is planned to be allocated in installments within four years. Even if the amount is huge, it is far from enough for Ukraine.

Ukraine estimates that to continue financing the war this year, it will need $39.5 billion more than expected from taxes and state aid, a shortfall equivalent to 9 percent of GDP.

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According to the plan, the IMF will release up to 5 billion U.S. dollars to Ukraine this year, and the rest may come from institutions such as the United States, Europe and the World Bank.

Even if Ukraine pulls together enough money to plug the shortfall, it will have to face debt repayment.

The report pointed out that Ukraine is a middle-income country and has to pay about 3.5% loan interest rate.

Moreover, the IMF charges an additional 0.5 percent administrative fee each time it disburses.

Coupled with the fact that Ukraine has borrowed too much and is obliged to pay surcharges, the surcharges may increase its interest expenses by 3 percentage points. Add up, the loan interest rate that Ukraine has to bear may fall between 7.5-8%.

In addition, IMF financial aid has additional conditions, and all financial aid comes with an economic prescription.

On the face of it, these should boost growth and fiscal discipline, helping borrowing countries service their debts.

But with the war situation still unclear, if the IMF miscalculates the situation in Ukraine, it could be a disaster.

According to the report, the IMF expects Ukraine's GDP growth in 2023 to range from 1% to -3%.

If Ukraine's fortunes hit rock bottom, it would leave Ukraine insolvent and deeply indebted in the middle of the war, or just starting to recover.

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