Ukraine finances in jeopardy: IMF

IMF's Lipton: G-20's growth agenda is a 'good task'
IMF's Lipton: G-20's growth agenda is a 'good task'   

A $17 billion loan may not be enough for Ukraine to manage its finances if the conflict with Russia continues, the International Monetary Fund warned over the weekend.

All parties involved in the Crimean crisis must work together, "because it's very hard to imagine how the finances of Ukraine can be kept under control [otherwise]," the group's deputy managing director David Lipton told CNBC at the G-20 summit in Brisbane.

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In April, the group agreed to a $17 billion two-year rescue package for Kiev with the aim of restoring macroeconomic stability. Yet that goal remains far off with the country in the midst of a currency crisis and facing an 8 percent contraction in gross domestic product (GDP) this year.

The hryvnia plunged to record lows against the U.S. dollar in recent days, slumping nearly 90 percent in value year-to-date. Meanwhile, the World Bank estimates that economic growth may only return in 2016.

"We are working with Ukraine to try and stabilize their economy, which has become destabilized by what's happened, including this conflict. This program stabilization really is now under threat from the flaring up of conflict," said Lipton. "We've been presuming that Ukraine and the separatists would make some progress after the ceasefire, [and] that Russia would co-operate with that."

However, signs of co-operation remain to be seen. A ceasefire deal between pro-Russian rebels and government forces in September has been repeatedly violated as both groups accuse each other of launching fresh offensives in eastern Ukraine.

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At the G-20 summit, Russian president Vladimir Putin said "there was a good chance of resolution" in the eight-month old conflict even as Reuters reported fresh rounds of artillery file in Donetsk over the weekend.

JOHN MACDOUGALL | AFP | Getty Images

Impact of sanctions on Europe

In regard to Western sanctions on Russia, Lipton said that while the IMF does not involve itself in the process, it does assess the economic consequences.

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"It's certainly the case that sanctions are having an impact on Russia. They so far do not seem to be having an effect on Western Europe but this is something that countries that apply sanctions and counter sanctions have to take into account when making their own political decisions."

He added that Germany, the economic powerhouse of Europe, remains vulnerable from a weaker Russia given its dependence on Russian gas, but doesn't anticipate too much macroeconomic damage as long as the Russian economy continues to function.

On the topic of overall European growth, Lipton dismissed the notion of another recession. "Recent data shows Europe is still growing. It's not growing as rapidly as it could be so that's why it makes sense to act."

Data last week showed euro zone GDP growing by a stronger-than-expected 0.2 percent in the third-quarter.

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"I think people have come around to the belief that countries have to operate on every margin for improvement that they have... Within the euro zone in particular, where the economies have been a little more sluggish than had been expected, that means also that the level of concern is higher," Lipton said. "So, countries are coming around to thinking about what more they can do."