Throughout the 20th and 21st centuries, the International Monetary Fund has remained one of the most important institutions in the global economy, continuing to preserve failing financial systems and supporting its member states during times of crisis. Created in 1944 at Bretton Woods, the IMF was originally created as a last resort to prevent global downfalls like those that had been factors of the Great Depression.

This influence can be seen in almost every part of the world, with the IMF providing debt relief to over 30 heavily indebted and low-income countries in the late 1990s and 2000s, as well as providing $540 billion to nearly 90 countries in Europe following the Global Financial Crisis.

The IMF’s involvement is far from straightforward, and its role has often been contested. While its aid can provide urgent liquidity and boost the confidence of investors, it also raises debates about the risks of dependency, sovereignty, and debt. The IMF has commonly been accused of “bailouts,” though studies of whether these are truly positive or harmful show mixed results.

This highlights one of the main economic theories in this sphere: moral hazard. Moral hazard in the case of IMF lending says that a country could be willing to take more risks because the IMF will be able to bear the burden if things go wrong, leading to potentially unnecessary borrowing. Furthermore, IMF lending consistently comes in the form of conditionality, where certain reforms to the economy or governance are promised in return for lending, and conditionality has been argued to have mixed effectiveness.

Lending to Ukraine amidst the war with Russia is one of the IMF’s biggest actions of contention, especially because it is the largest IMF arrangement ever given to a country in active war: an arrangement of $15.6 billion, which is part of a $115 billion international support package. This raises questions of whether Ukraine is ultimately benefiting from IMF involvement, or whether changes need to be made to the structure of the current Extended Fund Facility deal, or even the IMF as an institution itself.

Even prior to the 2020s, Ukraine had a fragile economy. Following the annexation of Crimea and the conflict in Donbas, the country experienced a cumulative contraction of 16% in 2014-2015. The Russian invasion of 2022 then triggered one of the most abrupt economic shifts for Ukraine, with GDP contracting by 28.8%, real wages dropping 16%, unemployment increasing to 20.2%, and net exports decreasing 9.8%. The Hryvnia to US dollar ratio had increased 34% from 2021 to 2022 and has only increased since then to its current state. With government debt rising to an estimated 78.276% of annual GDP, Ukraine had a serious chance of defaulting on its debts.

The IMF’s most important contribution to Ukraine since 2022 has been the role of a financial stabilizer during its crisis. Without external support, Ukraine would have been forced to take drastic measures and monetize deficits by spending their own money produced in the central bank, leading to hyperinflation and potential collapse of the hryvnia. The EFF provides not only liquidity but maintains a strong two-phased framework of focusing on maintaining monetary and fiscal stability in the wartime stabilization phase, before moving into reforms, and has allowed Ukraine to meet the immediate financing it needs while bolstering credibility to investors.

The structure of the EFF itself has a strong capacity to combat moral hazard. Disbursements are tied to reviews that happen roughly quarterly, which guarantees that the IMF will not be giving out too much money at a singular time, and ties releases of funds based on reviews that Ukraine must show progress at. Through this conditioning of funds on reforms, the IMF provides better curbing against Ukraine potentially relying on bailout financing and instead pushes for Ukraine to make policies that will strengthen governance and reduce vulnerabilities.

The stabilizing effect is measurable. Ukraine’s foreign exchange reserves have risen to record high levels, falling to below $20 billion in July 2022 while surging up to nearly $40 billion in December 2024, and growing even higher with a reported $43.0 billion on August 1st, 2025. Inflation has strongly surged down.

The continued increase of private investment, from 9.6% of GDP in 2022 to a projected 16.2% in 2025, shows that the confidence among firms has not left despite the shock, suggesting that IMF involvement may have been able to reassure investors and stabilize their expectations. The fiscal deficit was -24.8% of GDP in 2022, but by 2025 it is predicted to shrink to -5.5%, not an extreme drop, but a gradual one, reflecting that the IMF in this case is actually disciplining public finances gradually, and not the harsh cuts you would expect to see.

A common argument against conditionality is that IMF programs frequently have generic templates that ignore local populations and socio-political realities. From Ukraine’s data, this argument is harder to sustain. Unemployment has decreased drastically from 24.5% in 2022 to a predicted 14.0% in 2025, and public consumption has stayed roughly the same over the years 2022-2025. If anything, this shows that the IMF’s conditionality has potential benefits to social sectors and public services, as well as kept relative sovereignty to Ukraine.

Looking at comparable cases gives reason for longer-term optimism. When Russia invaded Georgia in 2008, the IMF swiftly sent financial assistance through a Stand-By Arrangement of $750 million. GDP dropped from 12.4% in 2007 to 3.5% in 2008, but was still positive and estimated to stay so in 2009. Georgia’s foreign exchange reserves since the war in 2008 have practically consistently gone up, and we can see that the policy for macroeconomic resilience has been able to preserve the central bank’s independence.

Research shows that the IMF could potentially lead to less short-term growth but can support more long-term sustainable growth if the implementation is done correctly in terms of conditionality. If conditionality is continually tied to clear benchmarks like anti-corruption and economic reform, Ukraine can gradually transition from relying on donor aid and potentially replicate Georgia’s trajectory for more investor confidence and improved growth.

Perhaps the most underappreciated dimension of IMF involvement is its catalytic role. The IMF loan itself is making up just above 10% of the total international aid package expected. Donors like the EU, US, and G7 usually heavily rely on the IMF to monitor and ensure that the funds given to Ukraine are not misused. For every one percentage point of GDP in IMF disbursements, low-income countries receive an additional 2.7 percentage points of GDP in Official Development Assistance. The IMF’s money is not the biggest contributor, but in fact the signal it gives draws in far more aid.

Ukraine illustrates the dual nature of the fund more clearly than almost any other case in history. The IMF is no lender of last resort and can’t back the entire Ukraine war economy, with the bulk of assistance coming from donors internationally. Conditionality, even though less severe in wartime, is still a major point of contention, and only time will tell how the Ukrainian economy develops in the coming years.

But the IMF is an overwhelmingly positive institution, and it is worth giving a chance. Common criticisms find many issues with the IMF currently, but as seen from its actions, the IMF more than not contributes to a positive impact on the global economic scale. The fact that the IMF is the closest thing to an international lender of last resort reflects the simple need for it. Ukraine demonstrates why the IMF is still essential while imperfect, its greatest strength lying in its ability to signal credibility and create reform, the institutional framework that can allow serious aid and change to happen.