Scenarios for Ukraine: What happens if the war drags on until 2027?
3 March 2025 17:39
ANALYSIS FROM 
Financially, Ukraine is in limbo. The United States is threatening to suspend or even cut off financial support for the country. Europe promises to provide money, but without specific terms. The only hope left is the International Monetary Fund (IMF). But not everything is going well here either. The IMF will reduce the tranche for Ukraine from $0.92 billion to $0.4 billion. Ukraine has not fulfilled all the requirements of the Fund. At the same time, we are approaching the worst-case scenario that the IMF has already calculated if the war continues.
Today it became known that Ukraine itself has asked the Fund to reduce the size of the next tranche, and this is a technical decision. This was announced on Telegram by Danylo Hetmantsev, chairman of the Verkhovna Rada Committee on Finance, Taxation and Customs Policy. According to the politician, this is done to save available resources “now” due to greater uncertainty with funding “tomorrow.”
“Let me remind you that we have a closed need for external financing for 2025. While the situation with raising funds from partners in 2026 is much more uncertain,” Hetmantsev said.
At the same time, he noted that Ukraine has fulfilled almost all IMF requirements:
- 6 out of 7 structural beacons have been fulfilled, one with a delay (creation of the Supreme Administrative Court to replace the liquidated DACK).
- one beacon (amendments to the CPC to strengthen the fight against corruption) has not been fulfilled, in the context of the abolition of the so-called Lozovyi amendments on the mandatory closure of criminal proceedings due to the expiration of the pre-trial investigation. The deadline was postponed for the third time.
- a new lighthouse has appeared: the signing of the law on raising excise taxes(No. 11090).
“Ukraine remains in the IMF program. Under the current circumstances, this is an additional factor of external support, which has now become less. I cannot predict whether the new US administration, as the largest shareholder in the IMF, will try to influence the revision of the Fund’s programs. I hope it won’t come to that,” the MP said.
How the US can influence IMF disbursements
What does the United States have to do with it? The United States has the largest quota in the IMF – 17.4%, which gives it 16.5% of the vote. The size of a country’s quota in the IMF depends on its position in the global economy and is measured by its GDP. In addition, the quota is influenced by the openness of the economy, the amount of reserves, etc. The United States has the largest quota in the IMF – 17.4%, which gives it 16.5% of the vote.
In 2023, the IMF and Ukraine agreed to extend a four-year program totaling more than €15 billion, of which about €5 billion has already been disbursed. This IMF program is part of an international support package for 2023-2027 worth more than €142 billion.
That is why we still have hope for the IMF, even though under this new lending program they will earn 6.9% per annum in hard currency or $12.1 billion in interest and repayment of previously issued loans. In other words, we will receive only $3.5 billion net from the IMF within 48 months. In general, over the period 2023-2027, we will receive a rather modest $0.5 billion from the IMF. And this is even if we choose all $15.6 billion for all 12 tranches, calculated Oleksandr Parashchiya, head of the analytical department at Concorde Capital.
A shock scenario called “Recession”
As MP Danylo Hetmantsev has already said, the IMF does not give money for free. There are conditions that can be met to ensure a positive outcome. But they also calculate the risks. In the IMF Memorandum, there are several scenarios for Ukraine’s development – good and bad – if the war does not end this year.
Good scenario: the war will end in the last quarter of 2025, but will only affect regions with already reduced economic activity due to the proximity of the front. However, growth rates will remain positive due to the recovery of potential production.
At the same time, the IMF believes that economic growth will decline further due to an increase in the energy deficit. Inflation will continue to rise and reach 9%, reflecting a sharp rise in producer prices (mainly energy) and labor costs.
Bad scenario: A protracted war implies negative consequences for economic performance due to uncertainty, labor shortages, import pressure related to defense and repair, and population dynamics. According to the IMF’s negative scenario, an escalation of the war would affect household sentiment, the rate of return of migrants, and damage to infrastructure as a result of the strikes.
But the IMF calculated an even more dire shock scenario called “Recession” if the war ends by mid-2026. This scenario would result in greater damage from longer and more intense fighting, more severe adverse supply shocks, deeper energy shortages, greater labor loss, and weaker return migration.
“In 2025, when the war will continue with high intensity throughout the country, real GDP will decline by 2.5% against the backdrop of weak growth in investment, consumption, and exports. High defense spending and weakening economic activity will lead to a further increase in the fiscal deficit in 2025-26, despite the expected implementation of some corrective measures. The imbalance in the foreign exchange market will re-emerge and is expected to persist for longer,” the Memorandum says.
In 2026, economic growth is not expected, as active hostilities will continue this year, and any recovery will be constrained by weak demographic trends. No real GDP growth is expected in 2027 and beyond. The updated cumulative financing gap in the negative scenario is estimated at about $140.6 billion, which is $19 billion higher than the baseline forecast for 2023-2027 ($121.8 billion), requiring additional steps to ensure debt sustainability.
For your information
According to the Central Bank, the country’s state budget is about half financed from abroad. And about EUR 40 billion of external funds are needed annually. Without foreign aid, Ukraine’s budget deficit will reach 19.6% of GDP, while the level of 3% is considered the threshold of financial stability. A possible end to US support could seriously complicate the situation for Kyiv. According to the Ministry of Finance of Ukraine, the United States annually contributed an average of about 10 billion euros to the Ukrainian budget.
Author – Alla Dunina
