Ukraine May Default as Early as August, UK Publication Writes

18:54 01.07.2024 (Updated: 11:58 02.07.2024)

A view of Khreshchatyk, the main street, empty, due to curfew in the central of Kiev, Ukraine, Sunday, Feb. 27, 2022 - Sputnik Africa, 1920, 01.07.2024

In late November last year, Ukrainian President Volodymyr Zelensky signed the draft bill on Ukraine's state budget for 2024 — which ran a deficit of more than $43 billion.

Ukraine may declare a fiscal default as early as August if authorities fail to reach an agreement with creditors on debt restructuring, a deal that seems unlikely, British magazine The Economist reported on Monday.

Ukraine could default on its government debt within weeks — wrecking the chances of fixing the damage done by NATO's proxy war with Russia.

"Ukraine has a month to avoid default," British magazine The Economist reported. "The IMF is keen for [Minister of Finance of Ukraine] Mr. [Serhiy] Marchenko to negotiate a write-down, but a deal seems unlikely in the time available."

Bloomberg reported that Kiev was unable to strike a deal with creditors during the first round of negotiations regarding the restructuring of its $20 billion debt.

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The Economist stressed that a Ukrainian default could be catastrophic for the country's long-term recovery.

Most foreign aid to Ukraine comes in the form of arms supplies, the magazine explained, while financial aid amounts to only a small fraction of that and does not cover all of Kiev's expenses.

The publication also reported that Ukraine's private-sector creditors fear that debt restructuring will be the first attempt by Kiev's allies to shift "the financial burden of war, and the cost of reconstruction, away from governments and onto the private sector." There is also skepticism about long-term recovery plans after the crisis ends.

"The current impasse raises a worrying prospect: that distrust between them [the Western states] and private investors will slow down progress," the Economist wrote, stressing that a significant part of Ukraine's recovery "will never turn a profit" and therefore will have to be shouldered by the country's allies.

In March, the British Financial Times quoted Roksolana Pidlasa, chairwoman of the Verkhovna Rada Budget Committee, saying Ukraine had allocated almost half of its annual budget of $87 billion for defense — while its domestic revenues amount to only $46 billion.

The deficit is expected to further increase due to an anticipated wave of mobilization, as billions will be needed for the salaries, training, and equipment of conscripts.

Ukrainian MP Oleksandra Ustinova said budget gaps are only being bridged by Western finance, and if US aid ceases, the government will be forced to turn to G7 countries "hat in hand."

www.pravda.com.ua

an hour ago

Ukraine's default is unlikely even without debt restructuring, says Centre for Economic Strategy economist | Ukrainska Pravda

Ukraine could declare default
– The Economist

Kiev so far has failed to restructure its debt, the outlet has said

Kiev could default on its enormous debts as early as next month if it fails to negotiate a restructuring deal with its creditors, The Economist reported on Sunday.

In February 2022, bondholders – including US financial giants BlackRock and Pimco, as well as French asset manager Amundi –granted Ukraine a two-year debt freeze in view of its conflict with Russia. But that agreement expires in August, and Kiev's creditors are anxious for it to begin paying interest on its debt again.
According to the outlet, the arrangement is worth 15% of Ukraine’s annual GDP, meaning that if payments had been required, they would have been Kiev’s second-biggest category of expenditure after defense.
The conflict with Russia has dealt a heavy blow to the Ukrainian economy, which has shrunk by a quarter since the outbreak of hostilities, the outlet said. Kiev’s debt-to-GDP ratio will approach 94% by the end of the year, despite “impressive” Western backing, although this largely comes in the form of “artillery, tanks and earmarked funds, rather than cash,” the article noted.

Ukraine’s creditors want their money back – WSJ

“Ukraine has a month to avoid default,” the outlet said, adding that the International Monetary Fund (IMF) is keen to negotiate a debt-relief plan, but any such deal is unlikely in the time available.
Last month, the Ukrainian government failed to reach agreement with a group of foreign investors on restructuring the country’s $20 billion debt in Eurobonds. Kiev has been urging bondholders to accept a steep debt writedown as it tries to meet IMF demands to restructure and retain access to international markets.

Ukraine sought to reduce its debt by 60% of its current value, while creditors said 22% was “more reasonable.”

If a new debt-restructuring deal is not reached, Ukraine would end up in default. This would damage the country’s credit rating and complicate its ability to borrow in the future.

Most likely scenarios for Kiev involve an extension on its debt-service freeze until 2027 or the declaration of a default, the outlet said. Either way, Ukraine will not resume payments to its creditors, it added.