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War, rebuilding, EU talks, reforms and refugees cloud IMF's mid-term forecast for Ukraine

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Increased resilience among businesses and people in war-time buoyed Ukraine's economy this year, the International Monetary Fund said. But beyond that, forecasting is clouded by numerous major uncertainties.

"Despite recent positive outturns, the duration and intensity of the war present a considerable risk to the economic outlook," the IMF said in its Regional Outlook for Europe published Wednesday. "Medium-term prospects depend on the outcome of the war, the scale of reconstruction spending, return of migrants, structural reforms and prospects of EU accession."

The report estimates that the economy will grow between 1% and 3% this year, "with some upside risk," after collapsing 29 percent in 2022 during the first year of the full-scale war with Russia, due to "increased resilience among firms and households during the war, supported by a rebound in domestic demand and improved consumer and business sentiments."

An IMF mission on Monday started a second review of its ongoing multi-billion dollar support program for Ukraine, possibly paving the way for the release of the next tranche of approximately $900 million in aid.

The review focuses on the IMF's $15.6 billion Extended Fund Facility (EFF), the lender's first loan to a country at war. The EFF, approved by the IMF board in March, forms part of a $115 billion support package for Ukraine. The IMF completed a first review of the EFF in June, allowing the country to access the equivalent of $890 million for budget support.

Wednesday's European regional report noted that foreign direct investment inflows into Ukraine totaled about $2 billion in the first 10 months of this year and foreign exchange outflows were below expected levels, helping underpin "the strong international reserves position."

It also said slowed at a faster rate than expected due to "easing of supply bottlenecks (including food and fuel), favorable foreign exchange market conditions amid a stronger hryvnia cash exchange rate, and improving inflation expectation."

The slowdown in inflation allowed the National Bank of Ukraine to cut its key policy rate by a total of 500 basis points, to 20 percent, since July.

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