Ukraine could declare default – The Economist
Kiev urgently needs to negotiate a debt-restructuring deal with its creditors, according to The Economist Read Full Article at RT.com
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Kiev has so far been unable to restructure its debt, according to a recent report.
The Economist reported on Sunday that Kiev might default on its substantial debts as early as next month if it fails to secure a restructuring deal with its creditors. In February 2022, bondholders, including major US financial institutions BlackRock and Pimco, as well as French asset manager Amundi, granted Ukraine a two-year debt freeze due to its ongoing conflict with Russia. However, this agreement is set to expire in August, and Kiev's creditors are eager for interest payments on the debt to resume.
The arrangement currently accounts for 15% of Ukraine’s annual GDP, meaning that if payments had continued, debt servicing would have been Kiev’s second-largest expense after defense.
The conflict with Russia has severely impacted the Ukrainian economy, which has contracted by a quarter since hostilities began. According to the outlet, Kiev’s debt-to-GDP ratio is expected to near 94% by the end of the year, despite significant Western support, most of which has been in the form of military aid and designated funds rather than cash.
The outlet noted, “Ukraine has a month to avoid default,” and added that although the International Monetary Fund (IMF) is eager to discuss a debt-relief plan, finalizing such a deal in the limited time available seems unlikely.
Last month, the Ukrainian government failed to reach an agreement with a group of foreign investors on restructuring its $20 billion debt in Eurobonds. Kiev has been pressing bondholders to agree to a substantial debt writedown to comply with IMF conditions for restructuring and retaining access to international markets.
Ukraine proposed a debt reduction of 60%, but creditors countered that a 22% reduction would be more appropriate. Without a new restructuring agreement, Ukraine risks defaulting, which would damage the country’s credit rating and complicate future borrowing.
The most likely outcomes for Kiev include extending the debt-service freeze until 2027 or declaring a default, the outlet reported. Either way, Ukraine will not resume payments to its creditors.
Max Fischer for TROIB News
The Economist reported on Sunday that Kiev might default on its substantial debts as early as next month if it fails to secure a restructuring deal with its creditors. In February 2022, bondholders, including major US financial institutions BlackRock and Pimco, as well as French asset manager Amundi, granted Ukraine a two-year debt freeze due to its ongoing conflict with Russia. However, this agreement is set to expire in August, and Kiev's creditors are eager for interest payments on the debt to resume.
The arrangement currently accounts for 15% of Ukraine’s annual GDP, meaning that if payments had continued, debt servicing would have been Kiev’s second-largest expense after defense.
The conflict with Russia has severely impacted the Ukrainian economy, which has contracted by a quarter since hostilities began. According to the outlet, Kiev’s debt-to-GDP ratio is expected to near 94% by the end of the year, despite significant Western support, most of which has been in the form of military aid and designated funds rather than cash.
The outlet noted, “Ukraine has a month to avoid default,” and added that although the International Monetary Fund (IMF) is eager to discuss a debt-relief plan, finalizing such a deal in the limited time available seems unlikely.
Last month, the Ukrainian government failed to reach an agreement with a group of foreign investors on restructuring its $20 billion debt in Eurobonds. Kiev has been pressing bondholders to agree to a substantial debt writedown to comply with IMF conditions for restructuring and retaining access to international markets.
Ukraine proposed a debt reduction of 60%, but creditors countered that a 22% reduction would be more appropriate. Without a new restructuring agreement, Ukraine risks defaulting, which would damage the country’s credit rating and complicate future borrowing.
The most likely outcomes for Kiev include extending the debt-service freeze until 2027 or declaring a default, the outlet reported. Either way, Ukraine will not resume payments to its creditors.
Max Fischer for TROIB News
