In recent weeks, speculation has intensified that the International Monetary Fund (IMF) may be encouraging Ukraine to devalue its national currency, the hryvnia, as part of ongoing talks for a new lending program. While no official policy shift has been confirmed, several reputable outlets have reported that discussions between the IMF and the National Bank of Ukraine (NBU) include the possibility of a controlled currency adjustment.
According to reports from Bloomberg and Ukrainska Pravda, the IMF’s reasoning is straightforward: devaluation would increase local-currency revenues from export contracts that are denominated in foreign currencies, thereby easing fiscal pressure on Ukraine’s wartime budget. However, the NBU is reportedly pushing back, warning that such a move will fuel inflation, weaken public confidence, and trigger social discontent.
The rumors surfaced during discussions of a potential new IMF loan program, which would follow the current four-year Extended Fund Facility (EFF) agreed upon in 2023. Ukraine has already received over $10 billion under that arrangement, but is now seeking additional support as it faces a steep budget deficit and continued war-related spending. According to Reuters, the IMF has not publicly confirmed any plan for devaluation, though officials have emphasized that exchange rate flexibility remains a cornerstone of their policy advice.
Why the IMF Might Support Devaluation
There are several reasons why the IMF might advocate for a weaker hryvnia. A devaluation would:
- Boost local-currency revenue: Export earnings converted into hryvnia would be worth more, helping the government close its budget gap.
- Enhance export competitiveness: A cheaper currency could make Ukrainian goods more affordable abroad, supporting sectors like agriculture and metallurgy.
- Support macroeconomic balance: IMF programs often encourage market-based exchange rates rather than heavily managed or overvalued currencies.
Yet, there are serious downsides. A sudden or sharp devaluation would likely push up inflation—especially in imported goods like energy and machinery—and will erode consumer purchasing power. Most labour agreements with employees stipulate salaries denominated in UAH, not tied to foreign currencies. As such the move risks undermining domestic demand and investor confidence.
Implications for Businesses
If the hryvnia were to devalue, both local and foreign businesses would face significant operational and financial challenges.
- Exchange rate exposure:
Foreign companies paid in hryvnia would see the value of local revenues fall when converted into their home currencies. Conversely, exporters earning in dollars or euros could benefit when converting income back into hryvnia. - Inflationary pressure:
A weaker currency would raise import prices, leading to higher input and energy costs. Payroll budgets might need to adjust as employees seek wage increases to maintain purchasing power. - Financing and debt service:
For businesses with foreign-currency loans, debt servicing costs could rise in local-currency terms. This could lead to liquidity stress, especially for smaller firms. - Investment sentiment:
Foreign investors often view devaluation as a sign of macroeconomic instability. New investment decisions could slow, and existing investors might demand higher returns to compensate for increased risk. - Contractual complications:
Businesses should review contracts that include fixed-price or currency clauses, as devaluation may trigger renegotiations or disputes over payment terms.
While the idea of a devaluation remains unconfirmed, it reflects the broader tension between Ukraine’s fiscal realities and economic stability. The IMF’s position appears driven by long-term structural goals, while the NBU is prioritizing short-term stability and public confidence.
For now, foreign businesses should prepare for potential volatility by modeling different exchange rate scenarios, reassessing pricing strategies, and ensuring contractual flexibility. Even if a devaluation doesn’t happen soon, the speculation itself underscores the importance of currency risk management in Ukraine’s uncertain economic environment. Make sure to ask your accountant what this potential move would mean for your business in particular.
