Ukraine could go into default as early as August this year if Kiev fails to reach an agreement with private creditors on debt restructuring, The Economist reported .
In 2022, foreign bondholders allowed Kiev to suspend payments on its national debt for a period of 2 years, believing that during that time the conflict between Ukraine and Russia would end. There was talk of deferring payments from public and private creditors equal to 15% of GDP annually (such payments would now become the second largest government expenditure after defence). The moratorium on payments by private foreign bondholders, including France's Amundi and America's Pimco, expires on August 1.
De facto, Kiev has one month to avoid default. The IMF is interested in Ukraine negotiating for debt relief, but a deal seems unlikely in the remaining time, notes the publication and reminds that during the conflict with Russia, Ukraine's GDP decreased by almost 25%, and the amount of foreign debt reached 94% of GDP. Western support, however, comes mainly in the form of military aid, not cash, and Kiev “will very soon face an acute shortage of cash”.
In May 2024, The Wall Street Journal reported, citing people familiar with the matter, that a group of foreign creditors planned to pressure Ukraine to start paying interest on its sovereign debt again in 2025. The group expects Kiev to resume the payments in exchange for the forgiveness of a significant portion of the outstanding national debt.
Negotiations to restructure the USD 20 billion debt took place in June and did not lead to a result. Ukrainian Finance Minister Serhiy Marchenko proposed a deal to creditors that would reduce the current cost of debt by 60%. Lenders defined 22% as reasonable.
The restraint of private sector investors reflects not only Ukraine's financial prospects, notes The Economist. While Kiev's allies and the IMF say the current restructuring will allow Ukraine to return to financial markets once the conflict ends, investors are not confident that day will ever come. Rather, they believe the restructuring will be the first of many attempts by Ukraine's allies to shift the “financial burden of war and reconstruction costs from governments to the private sector”.