The IMF has warned that holdouts could disrupt Ukraine's debt restructuring and undermine the ability to implement a new high-risk €37 billion bailout plan for the country.
The Fund said Ukraine should complete the debt restructuring by June to ensure the new bailout operation can stabilize the country's finances and help restore economic growth next year.
Ukraine plans to begin talks with foreign creditors who are holding tens of billions of dollars in Ukrainian debt to achieve some €14bn in savings over the next four years, just under the €16.5bn loan the IMF itself is putting up to strengthen the country.
However, the success of the program hangs on a successful, quick conclusion of those talks, firm progress on reforms by the Ukrainian government, and maintaining the ceasefire with pro-Russian rebels who have captured large parts of the country's east.
"The program faces exceptionally high risks," the IMF said in an extensive analysis of the economy and the prospects of the program released today.
Aside from the concerns over the resumption of fighting - the ceasefire has already been broken a number of times - the IMF said the debt talks themselves might not be easy.
It said a current effort to roll over private-sector debt payments of €37bn this year could stumble.
It also warned that holdouts from restructuring the government's debt could also make achieving the €14bn in savings difficult.
"Creditors may balk at the terms being offered in the debt operation and holdouts may try to free-ride," the IMF warned.
Thanos Arvanitis, assistant director in the IMF's European Department, said the debt restructuring negotiations were expected to be completed by the end of June.
"We are heartened that the ceasefire agreement of 12 February is holding," he said.
A 5.5% contraction of the economy this year and the plunge in the value of Ukraine's hryvnia currency, which lost over two-thirds of its dollar value in the past year, is expected to send the country's debt burden soaring.
The IMF estimated that public debt as a percentage of gross domestic product would rise to 94% this year from 72% at the end of 2014 and 41% the prior year.
The IMF said that stabilizing the country's finances this year would help the economy return to growth in 2016 of about 2%, though that would not include the heavily industrialized economy of the regions held by the rebels.
Even if the debt is restructured and the ceasefire holds, the IMF also reminded that Ukraine, which has failed to meet the requirements of previous IMF bailouts, needs to implement a hefty, detailed list of reforms.
"There are manifold risks that could adversely affect Ukraine's capacity to repay the Fund, and strict adherence to the program will be critical," the new report said.
Questioned whether the Ukraine rescue could fail like the massive bailout of Greece did in 2010, Arvanitis stressed that the new program is "very realistic".
Even if there are manifold risks, he added, "it is an absolutely necessary program."
Meanwhile, Poland will stress-test its defence capabilities with a series of countrywide drills involving the government, local authorities and the military in response to the Ukraine crisis, Polish president's chief security adviser has said.
Poland, which joined NATO in 1999, is concerned that Russia's annexation of Crimea and support for rebels in Ukraine may be an indication of plans to reassert itself in the rest of Eastern Europe.
Since the beginning of the crisis, Polish politicians have regularly called for increasing NATO's military presence in the region.
Poland has also speeded up its army modernisation programme, worth an estimated €31bn.
Poland will assess its overall readiness for a potential military conflict, General Stanislaw Koziej, head of National Security Bureau said in an interview released this morning.
He said drills are likely to begin in the second half of this year.
