IMF: Ukraine's debt faces high risks

The IMF, which recently released a loan installment for Ukraine, said Tuesday it views the country's debt as sustainable but facing "exceptionally high" risks linked notably to the pro-Russian conflict.

The International Monetary Fund, in a report on Ukraine's $17.5 billion loan program awarded in March, highlighted the government's progress in implementing required reforms, putting the economy on a tentative track to stabilization.

The global crisis lender, which extended a $1.7 billion loan installment to Ukraine on Friday, said that the Ukrainian public debt was "sustainable with high probability," a prerequisite for the IMF to lend to a member country.

But the Fund warned that "risks to the outlook remain exceptionally high," citing notably the "uncertainty about the duration and depth" of the pro-Russian conflict in the eastern part of Ukraine, the country's industrial heartland.

"A large shock associated with a sharp escalation of the conflict in the east could render debt dynamics unsustainable, but most observers consider this scenario unlikely," the IMF said.

In its report, the IMF signaled concern about the country's debt burden, which it expects will approach 100 percent of gross domestic product this year amid the country's deep recession, now forecast at a nine percent contraction.

In announcing its four-year financial rescue in March, the IMF said that Ukraine needed to find $15.3 billion in debt relief with private creditors over that time frame. The debt negotiations have begun but have yet to produce a result.

The Ukrainian debt outlook could suffer from "prolongation of the discussions on the debt operation" and "larger-than-expected financing needs of the banking sector," the report said.