International Monetary Fund proposed to depreciate Hryvnia.

Oct 2025 : Hryvnia, the currency of Ukraine has remained affirmative even after almost three years of the dreadful Russian attack on the country. The on-going war has devastated Ukraine, but its currency had regained its strength after the initial slump immediately after Russia had commenced the attack in 2022.

Furthermore, Ukraine’s central bank has held the country’s exchange rate relatively stable in the last two years after the initial volatility caused by Russia’s full-scale invasion. But that might be about to change. Reports unveiled that Ukraine faces a gaping hole in its finances which amounts to $60 billion for 2026 and 2027, according to finance minister Serhii Marchenko, and is under pressure to secure financing from foreign partners and find durable ways of raising more revenue domestically.

However, recent reports reveals that the International Monetary Fund has suggested the Ukrainian Central Bank to depreciate its currency, ahead of negotiations for a new loan program. A devaluation would mean Ukrainians get less value for the money spent, and the National Bank of Ukraine is so far reportedly resisting the move.

“Foreign assistance is approximately one half of our budget, so a devaluation means that we could convert one dollar of assistance into more hryvnias, helping us to fund our defence“, says Yeleazar Levchenko, economist at the Kyiv-based Center for Economic Strategy (CES). “It would also address our worsening trade deficit“, Levchenko added.

A combination of reduced exports and increasing imports is worsening Ukraine’s trade deficit, which hit a historic low of $5.1 billion from April to July, 2025, according to CES. Russia’s full-scale invasion destroyed or occupied some of Ukraine’s main export-oriented industries, including coal mines in Donetsk and steelworks in Mariupol. Exports have not recovered since.

Ukraine’s imports are also increasing as the country purchases goods critical to the country’s war effort and replacements for critical infrastructure damaged by Russian air strikes, such as batteries and transformers.

A devaluation would boost Ukraine’s exports, since they would be relatively cheaper. But they would also make imports more expensive for Ukrainians, potentially causing unrest.

“A devaluation in the exchange rate could start to fuel an inflationary spiral, where Ukrainians start to expect higher inflation, which requires further devaluation, and therefore higher inflation“, Levchenko says. Given the high uncertainty induced by the war and the sensitivity of Ukrainians to inflation due to recent financial crises, the central bank will likely be very cautious if it pursues a devaluation.

The hryvnia has been repeatedly devalued since Russia’s full-scale invasion, but for the last year, it has remained relatively stable between 41 and 42 hryvnias per dollar. A weaker hryvnia would mean the rate would rise above 42, implying that more hryvnias would be needed to purchase one dollar.

In order to upheld the status quo, the Ukrainian Finance Minister Serhii Marchenko last week has called for use of Russian frozen assets from 2026. About $300 billion of Russia’s central bank’s foreign reserves were immobilised in 2022 after Russia launched its full-scale invasion of Ukraine. The European Commission is currently developing a “reparations loan” initiative that would lend 140 billion euros of these assets to Kyiv, which faces a financing shortfall of $60 billion for 2026 and 2027, according to Marchenko.

In his statement, Marchenko also outlined Ukraine’s improving budget situation. “Internal budget revenues are increasing. In 2025, budget expenditure coverage through internal revenues rose by 11% compared to 2024. Tax revenues show positive dynamics and are expected to reach around 37.2% of GDP in 2026“, he said. He added that next year’s budget is being crafted on the assumption that the war would continue.

Team Maverick.