WASHINGTON - The International Monetary Fund approved Friday the release of nearly US$1.4 billion (S$1.75 billion) in fresh funds for troubled Ukraine, but warned that continued fighting could undermine the international bailout of the country.
The global crisis lender said Kiev had "generally" implemented economic reforms required under the support programme launched in April, though it had missed targets for building up reserves and cutting the government's deficit.
But it said that the urgent support programme marshaled for the economy by the IMF, United States and Europe in April remains deeply at risk.
The programme "continues to hinge crucially on the assumption that the conflict will subside in the coming months," it said.
That challenge appeared even more stark after NATO said Russia had sent at least 1,000 troops to fight alongside the rebels and had massed 20,000 troops near the border.
"This is not an isolated action, but part of a dangerous pattern over many months to destabilize Ukraine as a sovereign nation," NATO chief Anders Fogh Rasmussen said.
Despite the escalation in the crisis, IMF Managing Director Christine Lagarde said the government that took over in Kiev after February's overthrow of the pro-Russia president Viktor Yanukovych had made progress on the economy.
"However, the escalating conflict in the East and ongoing geopolitical tensions have weighed heavily on the economy and society, causing a deeper recession and deviations from programme targets in the short term," she said in a statement.
And while the government remains committed to closing its deficit, improving the climate for business, and fighting corruption, she said that risks to the programme "remain high".
"The programme success hinges on a timely resolution of the conflict in the East, as well as on the authorities' strong policy performance and adherence to the planned reforms," she said.
Prime Minister Arseniy Yatsenyuk via Twitter welcomed the new funds Friday as "a welcome sign of support and confidence." But earlier he described the economic situation "very difficult and very complicated, (as) the country is at war." It was the second release of funds from the IMF's programme to help stabilize the economy and its currency, the hryvnia, battered by years of mismanagement and deep corruption and more recently by Russia's seizure of Crimea and troubles with rebels in the country's east.
Ukraine's economy has contracted for nearly two years and continued to shrink in the April-June quarter.
In April the IMF approved a US$17 billion line of credit to Ukraine, part of a US$27 billion international rescue of the economy, but the first releases of funds have yet to stabilize the hryvnia.
The currency, which traded at just over eight hryvnia to one US dollar late last year, fell to almost 14 this week.
The IMF has warned the economy could contract 6.5 per cent this year, and in July Lagarde said the support marshaled by the international community might not be adequate to shore up Kiev's finances.