Ukraine must resume payments on its external government debts on August 1. Therefore, the Finance Ministry has only two options: negotiate with creditors for another deferment or accept that Ukraine will enter the stage of default.
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Statements about the default that the Ukrainian economy is allegedly experiencing already in August of this year will not come true, investment banker Sergey Fursa said.
The Economist published an article the day before, which stated that foreign bondholders have not yet agreed to suspend payments on Ukraine’s sovereign debt. So if this does not happen by August 1, Kyiv could allegedly declare default and lose investor confidence, which will affect post-war recovery.
Meanwhile, Ukraine has technically been in default since 2022. For completely justified and understandable reasons.
Fursa explains that such conversations concern the external debt that Ukraine attracted from foreign investors in the form of Eurobonds.
According to him, negotiations between the Finance Ministry and foreign investors on the extension of previously concluded agreements are continuing. Fursa says that even if their positions do not converge, there will be another extension:
None of the options threaten us with default, any tragedies or catastrophic consequences.
If Ukraine fails to reach an agreement with private creditors on debt restructuring by August 1, it will most likely be a question of extending the moratorium on payments, rather than Ukraine defaulting, says Maxim Samoiluk, an economist at the Center for Economic Strategy.
It is important for Ukraine to agree on a restructuring that would allow either not to pay anything to private creditors at all in the next few years, or to reduce the volume of such payments to a minimum, so as not to jeopardize defense financing. This should be an agreement on restructuring, and not the current suspension of debt payments. Negotiations between the government and private creditors are ongoing, and we hope that they will be completed on time and successfully for Ukraine, Samoiluk noted.
What is the Economist.com article about?
Over the past two years, Ukraine’s creditors have agreed to a debt repayment suspension. The amount saved by Ukraine on payments to official and private creditors is equivalent to 15% of GDP annually. Without the deferment, payments to creditors would have become the state’s second-largest expenditure after defense.
The moratorium for private bondholders, including some of the world’s largest investment companies Amundi (France) and PIMCO (USA), ends on August 1.
In June, Finance Minister Sergei Marchenko proposed an agreement to creditors that would reduce the current value of debt by 60%, but creditors “responded coldly,” considering a rate of 22% more acceptable.
While the amount of debt relief Ukraine wants is modest—$12 billion from 2024 to 2027—the country has no available funds to spend if creditors don’t agree to the write-off.
If a restructuring agreement cannot be reached, the government will have two options: try to extend the moratorium on debt payments or declare default.
Source: Racurs
I am David Wyatt, a professional writer and journalist for Buna Times. I specialize in the world section of news coverage, where I bring to light stories and issues that affect us globally. As a graduate of Journalism, I have always had the passion to spread knowledge through writing.