WASHINGTON: The International Monetary Fund (IMF) has cut its growth forecast for Ukraine, as Russian strikes on its power infrastructure drag on the nation’s economy, and says talks with bondholders are “intensifying” as a repayment deadline nears.

That outlook came alongside the Washington-based lender’s final approval last Friday to release US$2.2bil from Ukraine’s US$15.6bil aid package, an expected step after agreeing to terms late last month.

This is the fifth tranche Ukraine has received under the programme since it was established in 2023.

The IMF lowered its estimate for economic growth this year to a range of 2.5%-3.5%, a 0.5 percentage-point decline from its March outlook. It also cut next year’s estimate to 5.5% from 6.5%, it said in a statement.

“The recovery is expected to slow particularly given the attacks on Ukraine’s energy infrastructure, and the outlook is subject to high risks from the exceptionally high war-related uncertainty,” IMF managing director Kristalina Georgieva said in the statement.

IMF’s funds are an essential part of the US$38bil Ukraine plans to receive in foreign aid this year, serving as a financial lifeline as the war grinds into its third year.

Financial and military assistance from Western allies have allowed Kyiv to withstand Russia’s invasion, especially amid advances by Moscow in the country’s north and east.

The government’s negotiations with bondholders are “intensifying” and Kyiv has prepared a restructuring proposal that fits within the economic framework and debt targets of the fund-support programme, mission chief Gavin Gray said during a press briefing.

Ukraine’s first formal talks earlier this month with bondholders on restructuring more than US$20bil worth of international bonds ended without a deal, as creditors pushed back against Kyiv’s proposal for debt relief.

As it stands, the debt freeze will end with a coupon payment due on Aug 1 on a 2026 bond. The country could enter a default if it doesn’t pay after a 10-day grace period.

Gray said the IMF expects the government to continue with its strategy of completing the restructuring in the coming weeks.

He added that the downgrade in economic forecasts for this year and next won’t have an impact on the debt outlook for Ukraine, as the medium-term forecast hasn’t significantly changed.

Moscow’s renewed targeting of power generation facilities has trigged widespread blackouts that have hampered economic activity.

Ukraine’s central bank already cut its forecast for gross domestic product this year to 3% growth, from 3.6% in April. It plans to release a revised outlook next month.

Ukraine is scheduled to receive two more equal tranches from the IMF loan, totalling US$2.2bil, by the end of this year. The reviews required to approve these tranches will take place in September and December.

 - Bloomberg