The International Monetary Fund (IMF) expects Ukraine’s current account deficit to widen from 5.4% of GDP in 2023 to 8.1% and 14.3% of GDP in 2024 and 2025, respectively, according to the updated World Economic Outlook (WEO) released on Tuesday.
Earlier, in June of this year, the Fund estimated the current account deficit next year at 5.8% of GDP, and in 2026 – at 6.9% of GDP.
The IMF attributes the widening of the current account deficit to the persistent need for imports during the war, the impact of labor shortages on exports, and a decrease in grant funding. In the Fund’s view, these negative factors will outweigh the favorable impact of improved shipping routes, private remittances, and debt restructuring.
In the materials published after the fifth review of the EFF Extended Fund Facility program, it is noted that the current account deficit in the first half of 2024 increased to $8.6 billion compared to $1.8 billion in the first half of last year. The IMF cited a decline in grants from partners as the main reason.
Meanwhile, the trade balance in goods deteriorated by 8% yoy as high imports from the defense and energy sectors offset exports (especially of agricultural products and iron ore). The balance of services, on the other hand, improved with the end of the border blockades and a reduction in cash withdrawals by Ukrainians abroad.
The IMF predicts that after falling by 15.4% in 2023, exports will grow by 15.7% in 2024 and by another 6.2% in 2025. At the same time, imports, which grew by 21.5% in 2023, will increase by another 14.4% this year and by 7% next year.
According to the Fund’s estimates, the growth of foreign direct investment this year will slow to 2% of GDP from 2.6% of GDP last year, and in 2025 it will only slightly accelerate to 2.1% of GDP.
At the same time, thanks to the continued significant external financial support, the IMF forecasts that the country’s reserves will grow from $40.5 billion last year to $42.6 billion this year and $44.9 billion in 2025.
