Ukraine - Oops, the IMF did it again

The IMF published its latest staff report required for sign off on the latest, the eighth review, on it is $15.5bn EFF with Ukraine:

https://www.imf.org/-/media/Files/Publications/CR/2025/English/1ukrea2025002-print-pdf.ashx

As I have long argued, the way the IMF accounts for Ukraine’s financing needs is very blinkered. They just look at budget and BOP financing needs, not the total cheque in terms of Western financial support needed to keep Ukraine in the war. I would concur with the IMF in that the budget and BOP financing needs amount to around $40 billion a year. Indeed, the Fund uses the figure of $153 billion for the duration of the four year programme, so $38.25bn per year. It rises to $165 billion under an extended war scenario.

This is only a partial view of what Ukraine needs to keep it in the war - in terms of Western military, budget and balance of payments support. The best source for data as to this number is still the Kiel Institute, and their Ukraine support tracker - a superb piece of work.

https://www.ifw-kiel.de/topics/war-against-ukraine/ukraine-support-tracker/

From January 2022 to the end of April 2025, this puts support from Europe, the U.S., Japan, Canada, et al at €287.5bn ($339.25bn), plus around another $20 billion in multilateral financing means around $360 billion. Give or take that is around $100 billion a year for the West to keep Ukraine in the war, and not the $40 billion mentioned by the IMF. Actually as I have argued, to ensure a Ukrainian victory we actually need to increase funding of Ukraine to $150 billion a year, or just over $12 billion per month.

The $40bn pa given by the IMF does not make sense in my view as:

a) If Ukraine only got $40 billion pa, how could it defend itself, it could not without the additional military spending, which would mean defeat in war, and much bigger budget and BOP financing needs, presumably then.

b) We need to be honest with Western taxpayers what the actual cost of supporting Ukraine is, and what the long term commitment is. If they are told that it is only $40 billion a year spread out over many countries maybe they could assume that this sum can be met from the existing tax take in the West. But $100 billion a year, or even $150 billion to win, and now disproportionately assumed by Europe, with the US stepping aside under Trump?

c) Given b above I think it puts off the reality check that Western taxpayers should not and will not write such big cheques for an infinite amount of time, and that actually Russia should be made to pay through the use of immobilised CBR assets, the $330 billion remaining in Western jurisdictions.

But it’s like banging my head against a wall here, and the G7 prefer to sweep all this under the carpet, to the point that Ukraine is being underfunded as a result, the war has gone on a lot longer than should have been the case, and many more Ukrainians have died as a result. Imagine if back in mid 2022, Ukraine had been given the full $330 billion to fund their own war efforts - they could have bought all the Patriots, F16s, HIMARS, etc al to have made a better fist of the counteroffensive of the following year.

Returning to the latest IMF eighth review, it is similarly a rose tinted view of even Ukraine’s budget/BOP financing needs. Herein it keeps the assumption that the war will wind down in Q4 2025, as its base case, which significantly then reduces Ukraine’s financing needs for 2026. Actually it assumes the budget deficit more than halves in 2026 to just over 10% of GDP. It does have a downside scenario which is not its base case but which assumes the war winds down from mid-2026. Given we are already in the second half of 2025, with no substantive peace talks and the two sides far apart in terms of their respective positions and actually escalating the war, it looks like the downside scenario should already be the IMF’s base case scenario. This would then accept substantial additional financing needs for Ukraine - even from a budget and BOP perspective, and tens of billions of dollars higher. This would suggest more Western financing assurance and another more definitive debt restructuring on restructurable debt.

Herein my own Twitter followers appear far more realistic than the IMF, in my own view.

https://x.com/tashecon/status/1939977362793185319?s=61&t=wYv4c8R2e5qI1ZTyZPsQiw

Again, I should stress that all this rose tinted constructs around Ukraine financing lull our politicians and tax payers into a false sense of security about what the actual costs are of ensuring a Ukrainian victory. They ensure Ukraine is underfunded and they provide a reason not to seize CBR assets immediately to help Ukraine’s war effort.

Just one final point, I would argue the cost of financing Ukriane to win, would be nearer to $150 billion a year. Say that is for two years, so $300 billion. Now just think of the cost of our not funding Ukraine to win - the strategy we have pursued over the last 3.5 years. This is that the West still has to folk out $100 billion a year, but now we hear that European NATO has to increase its defence spending from 2% of GDP to 3.5% and then 5% eventually. Each 1% of GDP extra European NATO defence spend is $300 billion, so twice the annual cost of funding Ukraine to win, and defeat the Russia threat. If we end up increasing European defence spending to 5% of GDP, that is a $750 billion, in annual recurring defence spending. Are we actually idiots? So we can increase funding to Ukraine by $50 billion a year for two years to defeat Russia, or we can spend an extra $750 billion a year for the next however many years. This is a multiples payoff ratio/benefit for European NATO for funding Ukraine to beat Russia.

Let’s try and be more specific. Say European NATO increases defence spending by 0.5% of GDP in five year increments. That’s $150 pa over the first five years, 1% over the next five years ($300bn pa), 1.5% next five years ($450bn pa). Let’s end there, at the 3.5% of GDP Rutte target for pure defence spending, excluding infrastructure. Sum total of additional European NATO defence spending is $750bn (5*150) plus $1.5 trillion (5*300) plus then $2.25 trillion (5*450) so $4.5 trillion in total over the next 15 years. Set against this is the additional $100bn Ukraine defence spending, so a 45 to one pay off. And if you want to include all in spend, not just the increase, so $300 billion over two years, versus $4.5 trillion European NATO defence spend, it is then still a 15-1 payoff.