IMF Downgrades Forecast for Ukraine's Economy in 2015

The IMF reported that it has lowered its GDP forecast for Ukraine by nine percent, largely rooted in the 'unresolved conflict in Donbas.'

The grim projection - a drop from the April forecast of 5.5% - followed a two-week visit by the International Monetary Fund delegation to Kyiv.

Inflation in Ukraine is estimated at 46 percent, the IMF stated, primarily due to soaring oil prices and a significant currency fluctuation in February.

The Ukrainian head of the fund's mission, Nikolai Georgiev, nevertheless reported that negotiations with the IMF were 'constructive.' The fund noted some encouraging signs of growing stability, Georgiev said. 'In recent months, there are visible signs that economic stability is gradually returning,' he noted.

'The currency market remains stable. Gross international reserves, although still very low, rose to $9.6 billion at the end of April. Bank deposits in national currency are recovering,' Georgiev added.

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It should be noted that the IMF allocated $17.5 billion in loans to Ukraine after eight unsuccessful programs with it earlier, emphasizing that the government is committed to discipline and reforms after decades of state mismanagement and corruption.

Fund officials stated that as recently as 2013, there was no will among Ukrainian leaders to carry out necessary reforms to fix their economy - especially to combat widespread corruption - but this seems to have changed under the new leadership.

Ukraine must present a 'program of deep economic reforms.' Nevertheless, the Ukrainian economy remains in decline due to the ongoing conflict with pro-Russian separatists. The strain of war has devastated the state treasury, forcing Ukraine to cut its currency reserves to a minimum, moving towards default and a massive debt burden.

The total debt of Ukraine is estimated at about $50 billion, of which $30 billion is external debt and $17 billion is domestic debt. The debt of the public sector has increased to 71 percent of Ukraine's gross domestic product.

Ukraine is also currently seeking to reach an agreement with its bondholders to qualify for the next tranche of IMF credit. The government needs financial assistance to replenish reserves, aiming to return to growth next year.