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IMF says Ukraine could need billions in additional aid if fighting persists

A Pro-Russian rebel prepares arms for the the assault on the positions of Ukrainian army in Donetsk airport, eastern Ukraine, Sunday, Aug. 31, 2014. Russian President Vladimir Putin on Sunday called on Ukraine to immediately start talks on a political solution to the crisis in eastern Ukraine. Hours later, Ukraine said a border guard vessel operating in the Azov Sea was attacked by land-based forces. (AP Photo/Mstislav Chernov)

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A Pro-Russian rebel prepares arms for the the assault on the positions of Ukrainian army in Donetsk airport, eastern Ukraine, Sunday, Aug. 31, 2014. Russian President Vladimir Putin on Sunday called on Ukraine to immediately start talks on a political solution to the crisis in eastern Ukraine. Hours later, Ukraine said a border guard vessel operating in the Azov Sea was attacked by land-based forces. (AP Photo/Mstislav Chernov)

BRUSSELS - While Ukraine's leaders are trying to win the war against Russian-backed separatists in the east, they appear to be losing the battle to resurrect the country's battered economy.

Ukraine might need billions in additional support if the fighting between the military and the separatists in the country's east persists through next year, the International Monetary Fund warned Tuesday. Only covering the shortfall in the central bank's reserves would require an additional $19 billion by the end of 2015, the fund said.

If the fighting eases over the coming months, the country's economy would still be shrinking by a sharp 6.5 per cent this year, with meagre growth on the horizon next year, according to the IMF. Analysts, however, say the damage to Ukraine's gross domestic product is likely to be even more severe.

"There is no end in sight to the conflict, so it's almost impossible to make growth forecasts," said Timothy Ash, the head of emerging markets research at Standard Bank in London. "The recession this year will be deeper — maybe minus 8 per cent — and there will be no recovery next year."

Just as for the military stand-off in the east, Russia's actions will be key to the country's economic future, too.

"Risks loom large" because of the fighting and the unresolved dispute with Russia over prices on gas imports and arrears, the IMF acknowledged in its first in-depth assessment since granting the country a $17 billion bailout program in March.

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