IMF makes minor revisions to adverse scenario in updated EFF for Ukraine, warns of potential deterioration
The International Monetary Fund (IMF) made only slight adjustments to the adverse scenario during the eighth review of the Extended Fund Facility (EFF) for Ukraine but acknowledged the possibility of more pessimistic developments, which were not formally modeled in the updated program.
"Staff recognizes that risks to the downside scenario are exceptionally high. Alternative downside scenarios are conceivable, including with a different war duration or a less durable peace outcomes; these, however, are premature to model at this stage given the still-evolving nature of the peace negotiations and the high uncertainty on their outcomes," the report, published on the IMF website, states.
The IMF said that the current adverse scenario assumes the war ends in Q2 2026. In the eighth review, the onset of the adverse shock was moved forward to Q3 2025.
Under this scenario, real GDP is expected to shrink by 1% in 2025 (1 percentage point lower than forecasted in the seventh review), remain flat in 2026 (0.5 p.p. lower), and grow by 3.8% in 2027 (unchanged from the previous forecast).
The updated program also expands the list of downside risks to include intensified or prolonged conflict, reduced foreign economic and military support, populist pressures, and increased resistance from vested interests – factors that could impede reform efforts, especially through parliament.
Still, the IMF believes the baseline and adverse scenarios continue to capture a sufficiently wide range of potential outcomes, in line with the framework for programs under conditions of extreme uncertainty.
However, the Fund emphasizes that the program's capacity to absorb further negative shocks has diminished since the seventh review. Any additional deterioration would require funding to cover the resulting gap, potentially jeopardizing debt sustainability and complicating the implementation of the broader reform agenda.
"Finally, as before, there continue to be scenarios outside of the range spanned by the program frameworks which would make the attainment of program objectives infeasible," the IMF concluded.