Nothing seems to escape the war in Ukraine and its economic consequences are already unpredictable. This is acknowledged by the International Monetary Fund (IMF), which announced today that it will lower its global growth forecast for 2022 in its next update in April. The reason: the Russian invasion of Ukraine, which is contributing to further increase inflation and hindering world trade. In a virtual meeting with journalists, the Fund’s managing director, Kristalina Georgieva, anticipated this downgrade, but declined to detail what the adjustment will be. The IMF’s current global growth forecast for 2022 is 4.4%.

Regarding a hypothetical expulsion of Russia from the IMF, Georgieva explained that the only way contemplated by the institution’s statutes to expel a member is the violation of its financial obligations, something that the Russians have not done to date and that this is therefore a scenario that is not contemplated.

What Georgieva did admit is that Russia is heading for bankruptcy, a situation she considers “no longer an unlikely event” as a result of the sanctions applied to the country, because it will suffer a “deep recession” due to the war with Ukraine, the impact of which will entail a downward revision of the institution’s global growth outlook. “Russia’s default on its payments (‘default’) is already a real option,” acknowledged the IMF director, who detailed that “it is not that Russia does not have money,” but that the sanctions applied make it impossible for Russia to use this money. “I am not going to speculate on what may or may not happen, but I just want to say that let’s not talk anymore about Russia’s default as an unlikely event,” she added.

Wrecking effects of sanctions against Russia

On the other hand, the IMF head warned that the sanctions implemented have caused an abrupt contraction of the Russian economy, pushing it into a “deep recession” in which the depreciation of the ruble drives up inflation and substantially reduces the purchasing power and standard of living of the vast majority of the Russian population. “I can categorically say that the Russian economy is experiencing a sharp contraction, which will be a real recession in a short time,” assured Georgieva, for whom the key factor in this regard will be the duration of the war and the sanctions regime on Russia, as well as whether or not this sanctions regime can be further deepened by Russia’s energy exports.

Georgieva noted that what will determine how strong the recession in Russia will be will be the duration of the war and sanctions, as well as the possibility that these will be further tightened and affect energy exports. The managing director of the Fund explained that its office in Moscow is closed, that the IMF does not currently have any ongoing operations with Russia and that the reserve funds available to Russia in the organization are practically inaccessible to the country precisely because of the sanctions of other countries.

The IMF’s top executive has admitted that the deep contraction of Russia’s economy and potential significant contagions to other neighboring economies will likely have an effect on the global economic outlook, which the IMF will update next month, when growth projections will be revised “downward.” “The unthinkable happened: we have a war in Europe,” Georgieva stressed, noting that the spillover effects of the conflict for the rest of the world are transmitted through higher commodity prices, as well as reduced real incomes due to inflation and the impact on financial conditions and business confidence.

Financial assistance to Ukraine

The IMF’s executive board on Thursday approved a disbursement to Ukraine of $1.4 billion (€1.28 billion) under its Rapid Financing Instrument (RFI) to help the country address urgent financing needs and mitigate the economic impact of the war. “Of course, we stand ready to do more. As conditions in the country evolve, we will do our best to be at your service,” Georgieva stated. In this regard, she explained that the IMF is discussing with Ukraine what may be further needed as support to ensure that the functioning of the Ukrainian economy, the Central Bank, the Ministry of Finance and key authorities are better adapted to the circumstances of the current crisis. “We are ready to provide additional financing if necessary,” Georgieva promised.


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