IMF sees Ukraine\\\'s economy shrinking faster

KIEV, July 19 (AFP): The International Monetary Fund (IMF) warned Friday that the pro-Russia uprising engulfing Ukraine's vital industrial east had dealt a "notable" blow that would shrink its economy faster than feared.
The Fund said in its latest review of Kiev's compliance with terms of a $17.0-billion (12.6-billion-euro) rescue that Ukraine faced new headwinds that were not envisioned when the programme was unveiled in early May.
It said this year's growth would probably contract by 6.5 rather the 5.0 per cent initially forecasted because of revenue collection shortfalls in crisis-hit regions and higher spending on defence.
The IMF added that success of the two-year programme now hinged not only on Kiev's ability to adopt urgent but unpopular belt-tightening measures but also "crucially on the assumption that the conflict will begin to subside in the coming months."
The Fund's country mission chief complimented Prime Minister Arseniy Yatsenyuk's government for meeting commitments that could see the quick release of a second loan tranche of $1.4 billion.
"The conflict is putting increasing strain on the programme and a number of key elements of the macroeconomic framework have had to be revised," Nikolay Gueorguiev said in a statement.
"Economic prospects have deteriorated notably, and GDP is now expected to contract by 6.5 per cent this year, compared to 5 per cent when the programme was adopted," he said.
"A shortfall in revenue collections in the east, higher security spending, and lower-than-expected debt collection by Naftogaz will cause fiscal and quasi-fiscal deficits and financing needs to rise above the programmed path."
Gueorguiev added that higher-than-expected capital outflows were also putting the country's currency and budget forecasts in peril.
The IMF review was completed before Europe's most explosive standoff in decades erupted again on Thursday with the crash of a Malaysian jet that Kiev blamed on separatists who allegedly receive covert shipments of sophisticated Russian arms.
The 298 people who perished on the Amsterdam to Kuala Lumpur flight came from around the world and the catastrophe sparked condemnaton from a host of countries.