The International Monetary Fund (IMF) predicts an increase in the ratio of Ukraine's state and state-guaranteed debt to GDP in 2022 from 50.2% to 60.3%.

"The medium-term trajectory remains around 10 percentage points above the previous path, and its downward track depends on a quick rebound of real GDP growth and the realization of primary surpluses as projected. Continued geopolitical tensions and/or policy slippages would compromise this trajectory," the fund said.

"Baseline projections suggest that external debt still drops below 50% of GDP by 2026, although this is subject to heightened uncertainty and potentially higher external financing to risks from macroeconomic shocks. Import compression in the near term will help contain the increase in external debt to around 70% of GDP in 2022. Although the trade deficit is expected to weaken during reconstruction efforts, the medium-term trajectory anticipates relatively flat projections for net private sector inflows (corporate and bank) despite economic growth. Like the public DSA, external debt dynamics are highly vulnerable to an exchange rate shock," it said.

The IMF recalled that amid escalating geopolitical tensions, the hryvnia depreciated from the beginning of the year until February 24, when Russia attacked Ukraine, by about 7%, to UAH 29.5/$1. The foreign exchange market was suspended, and the rate was fixed by the National Bank at this level. The exchange rate is expected to remain fixed for the duration of the conflict and some depreciation is expected as controls are gradually liberalized and the economy stabilizes through the end of the year.

"Elevated inflation is likely to persist for longer than previously expected. Single digit levels are likely only in 2023 and the 5% target level in 2025 due to supply disruptions and spending pressures to address needs arising from the conflict," the IMF said, forecasting inflation to rise to 20% this year from 10% in 2021 and 5% in 2020.