Ukraine conflict and sanctions on Russia pose significant threat to global economy, says IMF
The ongoing conflict between Russia and Ukraine is having significant economic implications, not only for the two countries but for the global economy as a whole. The International Monetary Fund (IMF) Executive Board has recognized the severity of the situation and is considering fast-tracked financial assistance for affected countries.
The war in Ukraine has caused massive damage to the country’s physical infrastructure and sent over a million refugees to neighboring countries. Unprecedented sanctions have been imposed on Russia, which will have a substantial impact on the global economy and financial markets, with significant spillovers to other countries.
The conflict is also contributing to surging energy and commodity prices, including wheat and other grains, which are adding to inflationary pressures from supply chain disruptions and the rebound from the Covid-19 pandemic. These price shocks will have a global impact, especially on poor households for whom food and fuel make up a higher proportion of expenses. The economic damage would be all the more devastating if the conflict escalates.
In addition to the human toll, the economic damage to Ukraine is already substantial. Sea ports, airports, roads, and bridges have been damaged or destroyed, and the country will face significant recovery and reconstruction costs. Ukraine has requested emergency financing of US$1.4 billion under the IMF’s Rapid Financing Instrument.
Depleting economic reserves
The sanctions against the Central Bank of the Russian Federation will severely restrict its access to international reserves to support its currency and financial system. International sanctions on Russia’s banking system and the exclusion of several banks from SWIFT have significantly disrupted Russia’s ability to receive payments for exports, pay for imports, and engage in cross-border financial transactions. The mark-down in asset prices and the ruble exchange rate has been sharp.
Countries with close economic links to Ukraine and Russia are at particular risk of scarcity and supply disruptions and are most affected by the increasing inflows of refugees. Moldova has requested an augmentation and re-phasing of its existing IMF-supported program to help meet the costs of the current crisis.
The IMF will continue to monitor the spillover effects on other countries in the region, particularly those with existing IMF-supported programs and those with elevated vulnerabilities or exposures to the crisis. The ongoing war and associated sanctions will also have a severe impact on the global economy.
The Fund will advise member countries on how to calibrate their macroeconomic policies to manage the range of spillovers, including via trade disruptions, food and other commodity prices, and financial markets.
The economic impact of the conflict between Russia and Ukraine is not limited to the two countries. The global economy is at risk of significant disruptions, particularly in terms of energy and commodity prices. Poor households, in particular, will feel the effects of these price shocks, and countries with close economic ties to Ukraine and Russia are already experiencing scarcity and supply disruptions.
The IMF is closely monitoring the situation and is prepared to provide financial assistance to affected countries.