Ukraine has one month to deal with possible default — Economist
Already on August 1, the grace period during which Ukraine did not pay off its foreign debts ends. The two options are to agree on an extension of the debt service freeze period or actual default, The Economist reports.
In 2022, Ukraine managed to agree on the postponement of payments to investors in the country's foreign debt in view of a full-scale war.
So, over the past two years, Ukraine's creditors have agreed to suspend debt service payments. The deferment — from both public and private creditors — amounts to 15% of GDP per year. If these payments were to occur, they would become the second largest item of government spending (after defense spending).
According to MP Danil Getmantsev, by the end of 2023, the ratio of public debt to GDP reached 84.5%. This year, according to IMF estimates, it may make up 94% of GDP. At the beginning of the full-scale war, this ratio was 49%.
The IMF wants the Ministry of Finance of Ukraine to agree on a write-off, but such an agreement seems unlikely at the moment.
At the beginning of June, closed meetings were held with Eurobond owners, who own 20% of Ukraine's Eurobonds, with a proposal for restructuring. The Ministry of Finance proposed two options, which provide for a nominal reduction of debt under Eurobonds to 60%, with a potential reduction to 25% in the event of a significant improvement in the economic situation during the period of the IMF Program.
This would save $10 billion in debt payments by 2027 and maintain debt sustainability within the EFF program. However, it has not been possible to come to an agreement so far.
Minister of Finance of Ukraine Serhiy Marchenko noted that the consultations will continue.
“I know we are asking private creditors for a substantial effort on their part, but without a restructuring, Ukraine will not be able to sufficiently finance our defence and embark on our bold recovery and reconstruction agenda – which we know is a shared common objective across our public and private sector partners," the minister said.
The Economist writes that the amount of aid given to Ukraine by allies is impressive. But this aid comes in the form of artillery, tanks and earmarked funds, i.e. for specific goals/projects.
Of the recent US aid package, only $8 billion will go directly to the Ukrainian government—equivalent to just over a quarter of Ukraine's annual welfare spending, and even that is in the form of a loan. The EU plans to offer slightly more, but still only $38 billion over three years.
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