The IMF’s negative scenario assumes that the war will end by the end of 2025 (compared to the end of 2024 in the baseline scenario) and that the shock will start in the third quarter of 2024. This will affect business and household sentiment and the pace of migrant returns, accelerated by further damage to energy infrastructure from Russian attacks. These factors would lead to a sharp decline in real GDP of 1.7% in 2024 (compared to 2.5-3.5% in the baseline scenario) and a 1% drop in 2025.
High defense spending needs and a decrease in economic activity will increase the budget deficit. Foreign exchange imbalances will resurface and persist for longer, given the deterioration in export performance, leading to higher devaluation in the coming years before it approaches the underlying trend.
The subsequent recovery will be more subdued than in the baseline scenario, given even greater damage to fixed assets, and output will remain below pre-war levels.
In the pessimistic scenario, the total funding shortfall is estimated at approximately $140.7B, roughly $19B higher than the baseline forecast for 2023-2027.