Transcript of IMF Media Roundtable on Ukraine
IMF News, March 10, 2022
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- Published: March 10, 2022
Impact on Ukraine
- Human toll and displacement:
- "Horrific toll on people, loss of lives, human suffering, massive increasing refugees."
- Refugee count noted as "2.1 million" with potential to rise.
- "The most valuable part of Ukraine’s richness—its human capital—is leaving in numbers we have not seen in Europe since the Second World War."
- Immediate economic and infrastructure damage:
- "Damages on infrastructure are massive."
- "Shortages of food, medicine; in some parts of the country electricity running short."
- Recovery and reconstruction:
- Recovery and reconstruction costs described as "already massive."
- Ukrainian estimate reported by a questioner: "costs already at a $100 billion" (noted as comment from the chief economic advisor to President Zelensky).
- IMF position: “It is too early to have any assessment of damage, costs, and reconstruction plans” — assessment requires the end of hostilities and coordinated work with the World Bank and other institutions.
- Population and size:
- Ukraine described as "a large country, 44 million people."
IMF support to Ukraine (actions and financing)
- Immediate crisis engagement:
- IMF staff in constant contact with Ukrainian counterparts "from February 24 onward."
- Two support functions provided: crisis management advice to the Central Bank and finance authorities; and emergency financing.
- Emergency financing disbursements:
- Board-approved emergency financing of "$1.4 billion"; "one minute to close of business yesterday, this money was disbursed in Ukraine’s SDR account."
- Earlier support included "$2.7 billion in SDR allocation issued to Ukraine" and "$700 million was disbursed in December under our, at that point, existing program."
- Use and accountability:
- Emergency financing intended "to support the functioning of the Ukrainian economy and especially the ability of the Ukrainian authorities to pay salaries, pensions, provide the necessary funding for basic services."
- IMF will "work with Ukrainian authorities" and expects audited accounting of how emergency financing was used, as done during the Covid crisis.
- Further IMF readiness:
- IMF "stand[s] ready to do more" and is "ready to provide additional financing should that be necessary."
- Current highest-priority support is crisis management to ensure Ukraine’s authorities and institutions "function."
Regional spillovers (neighbors and refugee-hosting countries)
- Channels and affected areas:
- Main channels: trade disruptions, interruption in remittances, and influx of refugees.
- Neighborhoods highlighted: Central Asia, the Caucuses, Moldova, the Baltic countries.
- Moldova:
- Noted that Moldova "has a program with the Fund and is asking for an augmentation of this program."
- Refugee hosting:
- Respect expressed for countries receiving mostly women, children, and elderly refugees for their support.
Global spillovers and transmission channels
- Three key transmission channels identified:
- "First and most impactful: higher commodities prices."
- "Second: impact on reducing real income because also of inflation."
- "Third: impact on financial conditions and business confidence."
- Commodities and inflation:
- Surging prices cited for "energy and other commodities—wheat, corn, metals, inputs for fertilizers, semiconductors."
- Concern emphasized for households in poverty where food and fuel are a larger share of expenses.
- Financial conditions and policy implications:
- "Financial conditions have been already tightening in many countries" and inflation pressures may force monetary tightening "to go faster and go further."
- Emerging markets are highlighted as particularly vulnerable to combined shocks to confidence and tighter conditions.
- Outlook implications:
- IMF expects "a downward division of our growth projections" in the next World Economic Outlook update.
Russia: sanctions, economic contraction, SDRs, IMF engagement
- Sanctions and economic impact:
- "Unprecedented sanctions have led to abrupt contraction of the Russian economy, moving into a deep recession."
- "Massive currency depreciation is driving inflation up" and "denting severely the purchasing power and standards of living" for many in Russia.
- Recession described as "deep" and "sharp contraction" already evident; scale depends on "the duration of the war and the duration of the sanction regime."
- SDR access and use:
- Russia has an SDR account at the Fund, but use is "highly, highly, highly improbable" given the "very complex and severe sanction regime" and the need for financial intermediation and willing counterparties.
- No operational pathway seen to convert or access SDRs under prevailing sanctions.
- IMF operational presence and membership status:
- "We do not have resident representative in Moscow" and "our Moscow office is not operational."
- On membership: Fund Articles of Agreement define membership and provide a pathway for exclusion in case of violations of economic obligations; "beyond condemnation, there have been no discussions at this point around Russia's membership at the Fund."
- Default risk:
- IMF view: "The Russian default is no more an improbable event." Whether default occurs depends on prospects for peace and the ability to service obligations given sanctions that prevent use of available resources.
Reconstruction financing and coordination
- President Zelensky asked the IMF "to be ready to help mobilize financing and work with others for the rebuilding of the country."
- IMF actions and intent:
- IMF is "preparing ourselves to present to others who are there willing to help Ukraine a funding mechanism" and discussing "possibility of mobilizing financing in a more coordinated manner."
- Observation: "When the IMF provides significant financing, that anchors some of the dollars into coming to the help of the affected country."
Regional impacts and policy guidance by region
- Africa:
- Africa still "struggling to recover" from the COVID-induced recession with "very limited" fiscal space and "quite a number of countries under a very high burden of debt."
- Four channels hitting Africa: energy prices (12 energy exporters, 42 energy importers noted), food price rises and food insecurity (noted concerns for Sudan, Ethiopia, the Horn of Africa), tighter financial conditions and debt service pressures, and tourism losses where Russian/Ukrainian tourists mattered (example: Egypt).
- IMF engagement: Ministers urged to "work early on your plans so you can benefit from the Trust once it becomes available."
- Resilience and Sustainability Trust (RST):
- Design to be "approved by our Board by the Spring Meetings" and "in implementation by the Annual Meetings."
- African countries that have arrangements with the Fund are likely eligible and "interested in it."
- Latin America and the Caribbean:
- Region already struggling with recovery and "high inflation" prior to the Ukraine war.
- Possible mixed effects: some oil and food exporters could benefit via higher revenues; many countries face higher inflation and pressures from fertilizer availability and trade disruptions; tourism demand may be suppressed by eroded real incomes.
- Policy imperatives include targeting support to the vulnerable and undertaking structural reforms, including addressing energy subsidies.
- Asia and China:
- Energy price increases will affect India and other Asian economies; India’s inflation noted as "close to around 6 percent range, which is at the upper end of the inflation band of the Bank of India."
- China has "more policy space than many other countries" and aims for growth around "5 percent" (noted target) and "aiming for 5.5 percent" (reported aspiration), though achieving the higher end may be harder given shocks.
- IMF advice: protect vulnerable populations with targeted fiscal measures and consider calibrated monetary policy responses.
- Middle East and North Africa (MENA), including Egypt:
- Supply-chain disruptions and higher grain prices are pressuring inflation targets in MENA.
- For Egypt, concern that "sustained high food and energy prices" would significantly affect the population; IMF engaged in discussions on targeting vulnerable populations and businesses.
- Global structural implications:
- Possible accelerations in diversification away from Russia in energy markets, pushes toward renewables, changes in payment systems, and implications for reserve compositions.
- Overall outcome depends on the duration and severity of the war and sanctions; potential for altered global economic integration if tensions persist.
Policy recommendations and IMF guidance
- Immediate policy priorities for members:
- Protect the most vulnerable from higher energy and food prices with targeted fiscal support.
- Use fiscal space where available, and target support "to those that are in greatest need."
- Calibrate monetary policy appropriately in response to higher inflation and tighter financial conditions.
- For countries with limited fiscal space:
- Seek coordinated external financing and policy support; IMF stands ready to provide additional financing and crisis management advice.
- For resilience-building:
- Prepare plans to access the Resilience and Sustainability Trust (RST) once operational.
- Consider structural reforms (e.g., energy subsidy reform) to strengthen fiscal positions and resilience.
- Multilateral system:
- IMF emphasizes keeping membership and the global safety net cohesive: "our job at the Fund is to make sure that we keep the membership together" because collective capacity is critical in a "more shock prone world."