As Kiev faces a third winter of conflict, a looming currency devaluation could pose the next economic challenge for a nation already in significant financial straits. With an International Monetary Fund (IMF) mission currently in the capital to review Ukraineâs $15.6 billion loan program, the government is under increasing pressure to implement decisive measures to stabilize the economy, which could include allowing the hryvnia to weaken further. The IMFâs four-year program is critical to Ukraineâs financial afloat and is a key part of a broader global economic support package. Ukraine spends around 70% of its total budget on defense, leaving the government reliant on Western financial aid to cover public sector wages, pensions and basic social services. This heavy dependency is placing a huge strain on Kievâs finances, which are showing signs of strain. While the successful completion of the IMF review could unlock an additional $1.1 billion in funding, the government must first demonstrate its ability to meet the IMFâs fiscal targets, including closing a budget deficit of around $14 billion by the end of the year. Finance Minister Serhiy Marchenko, who is expected to remain in his post after Zelenskyâs latest cabinet reshuffle, has already flagged the need for tax hikes, higher import duties and increased domestic borrowing to close the gap.
These steps alone may not be enough to prevent a controlled devaluation of the hryvnia. The hryvnia has lost about 10% of its value since June, and further devaluation would mean increased inflation, more expensive imports and reduced purchasing power for Ukrainians.
Allowing the currency to fall further may be necessary to maintain fiscal stability and meet IMF expectations, many experts suggest. Kievâs efforts to stabilize its economy have included debt restructuring agreements with bondholders, but widening budget deficits and limited central bank resources to support the currency increase the risk of devaluation. While Ukraine has received about $98 billion in financial assistance from Western partners since 2022, those funds may not be enough to cover its growing fiscal deficits. A currency devaluation looks increasingly likely in the coming months amid rising defense spending, continued reliance on foreign aid, and mounting economic difficulties. Kiev may need to accept this reality as part of its broader efforts to ensure fiscal stability in these difficult times. While the IMF review is ongoing, much of Ukraineâs currency and economic future remain in delicate balance.
