The $40 billion bailout for Ukraine faces an array of "exceptionally high" risks, the IMF warned Thursday, a day after pledging to pump $17.5 billion into the four-year rescue.
The breakdown of a frail ceasefire with rebels in the country's east, the failure to reschedule its debt with private lenders, or domestic political issues could all undermine the plan even as it starts, the IMF warned.
"The program faces exceptionally high risks," the IMF said in an extensive analysis of the contracting Ukraine economy and the prospects of the program.
"There are manifold risks that could adversely affect Ukraine's capacity to repay the Fund, and strict adherence to the program will be critical," it said.
The IMF commitment to the country is considered quite substantial, given Ukraine's dismal record of implementing previous Fund programs and considering it remains locked in a bloody military conflict with well-armed rebels.
The risky venture has raised comparisons with the first Greek bailout, which failed to strengthen the country and forced a second, more expensive program.
Questioned Thursday whether the Ukraine rescue could crumble like Greece's, Thanos Arvanitis, assistant director in the IMF's European Department, stressed that the program for Kiev is "very realistic".
Even if there are manifold risks, he added, "it is an absolutely necessary program."
"It tries to bring immediate stabilization in the economy," he added.
- Deep risks ahead -
The IMF itself spells out the deep risks ahead. First is the conflict with pro-Russia rebels in the industrialised east of the country.
The February 12 ceasefire was a key step in crafting a rescue package for Kiev between the government and the IMF, World Bank and key bilateral lenders.
On Thursday an OSCE monitor of the conflict zone said the ceasefire deal is largely being observed but is still on "thin ice".
"We are heartened that the ceasefire agreement of February 12 is holding," said Arvanitis.
With the IMF's portion of the $40 billion package, and that from multilateral and bilateral lenders, nearly all lined up, the next challenge is for Kiev to strike a deal with holders of its debt that will give it $15 billion more breathing room over the next four years.
Talks on a debt restructure will begin Friday, with no one sure how ready creditors will be to give the government more room.
The IMF warned that the current effort to roll over private-sector debt payments of $40 billion this year could stumble.
It also said Thursday that stubborn creditors could stall or block the broader debt restructuring.
"Creditors may balk at the terms being offered in the debt operation and holdouts may try to free-ride," the Fund warned.
Arvanitis said the debt restructuring negotiations were expected to be completed by the end of June.
Even if the debt is restructured and the ceasefire holds, the IMF also reminded that Ukraine needs to implement a hefty, detailed list of reforms which could prove painful and test political will.
Domenico Lombardi, a former IMF Board member currently in Kiev, said it was a good sign that the burden to shore up Kiev's accounts was being spread among a number of parties.
"Too often, sovereign crises are addressed by disproportionately relying on the international taxpayer," he told AFP.
"In this case, contrary to some previous experience in the Eurozone (Greece), the IMF is showing that the international approach to the management of severe sovereign debt crises must be equitable to be effective," he told AFP.