(Adds details, background)
By Anna Yukhananov
WASHINGTON, Sept 2 Ukraine may need as much as
$19 billion in additional funds from donors if its conflict with
pro-Russian separatists continues during 2015, the International
Monetary Fund warned on Tuesday.
Even under Kiev's current $17 billion IMF bailout, the Fund
said Ukraine will not be able to meet all of its targets due to
the ongoing fighting and an intensified gas dispute with Russia,
which supplies the bulk of Ukraine's natural gas needs.
Nevertheless, it said the money planned under the program is
largely sufficient for now as long as the fighting between the
government in Kiev and the rebels in the eastern part of the
country subsides in the "coming months."
The momentum in the five-month war shifted last week
decisively in favor of the rebels, who are now advancing on a
major port as they seek to throw off rule from Kiev. Western
countries accuse Moscow of sending troops into Ukraine, a charge
Kiev will now face a $3.5 billion funding shortfall for this
year and next due to the fighting, but the IMF said the
government should be able to cover most of it with planned debt
issues and an expected $900 million in further donor support.
In a detailed review of Ukraine's progress and the state of
its economy, the IMF painted a dire picture of a country trying
to reform everything from banking management to the legal
system, while also boosting spending on fighting in the eastern
regions of Donetsk and Luhansk.
Those regions together accounted for 23 percent of Ukraine's
industrial production and 14.5 percent of its retail trade in
the first quarter. The IMF said it expects gross domestic
product in eastern Ukraine to decline by 15 to 20 percent this
year, compared to a 6.5 percent decline for the country as a
But outside analysts predict Ukraine's economy may contract
by up to 8 percent this year, and are starting to brace for some
form of debt restructuring on Ukrainian bonds.
The Fund, which provided a bailout to Kiev as part of an
overall $27 billion international rescue, said it would relax
some conditions for Ukraine going forward, including for the
government's budget deficit and the level of central bank
In return, Kiev would have to make up for the shortfall
elsewhere, including by doing a better job of collecting
payments for Naftogaz, the state-run oil and gas company.
The IMF also predicted the government would have to spend
more money to restructure the banking sector and support
Naftogaz, adding to government debt.
In addition, it warned that Ukraine's reforms may become
more difficult if the country calls early elections.
The Fund on Friday confirmed Kiev was on track with most of
the loan's conditions so far, allowing the disbursement of $1.7
billion. It said the next disbursement, of about $2.7 billion,
would come in mid-December if Kiev complies with the loan
(Reporting by Anna Yukhananov; Editing by Paul Simao)