How Much Does Ukraine Owe? G7 Leaders Agree To Lend $50 Billion But The War-Torn Country Is Heavily Drowned In Debt
Fitch downgrades Ukraine's rating to ‘C’
Rating agency expects country to not service external commercial debt until restructuring deal with bondholders completed
ISTANBUL
Fitch Ratings said Wednesday that it downgraded Ukraine's long-term foreign currency issuer default rating to ‘C’ from ‘CC.’
The rating agency said the move reflects its view that "the agreement in principle reached on 22 July between the government and some Eurobond holders on restructuring terms, after parliament approved legislation last week allowing the government to suspend commercial external debt payments for three months, marks the start of a default-like process."
Fitch noted that the Ukrainian parliament's approved legislation on July 18 allows the government to temporarily suspend payments on state and state-guaranteed external commercial debt.
The agency said it expects the country will not service its external commercial debt, including a 2026 Eurobond coupon due on Aug. 1, until a restructuring agreement with bondholders is completed.
It added that the deal with bondholders and the law on debt suspension are consistent with the government's efforts to comply with its four-year $15.6 billion Extended Fund Facility IMF program, which Ukraine completed in late June in its fourth review.
Fitch said it forecasts the general government deficit to remain high at 17.1% of GDP this year, noting defense spending was 31.3% of GDP last year.
The agency projects government debt to increase to 92.5% of GDP in 2024.
"Fitch anticipates the war will continue throughout 2024 and into 2025 within its current broad parameters," said the statement.
"While it is not clear either side could win a decisive advantage, there is also no sign of a willingness to make concessions, so the war could prove very protracted."
"Over a longer horizon, we anticipate some form of settlement, but view a 'frozen conflict' as more likely than a sustainable peace deal, at least for a significant period," it added.
Zelenskyy signs law allowing for suspension of external debt payments
Ukraine's President, Volodymyr Zelenskyy, has approved legislation allowing the government to defer public debt payments until October if necessary.
Source: website of the Verkhovna Rada (Ukraine’s Parliament)
Details: According to the e-version of the bill’s information card, the document was delivered to the President's Office on July 24 and returned to the parliament on 31 July with Zelenskyy's signature.
The bill allows the government to temporarily defer payments on foreign public debt until 1 October 2024.
- It also allows the government to transfer the former Ukravtodor's state-guaranteed debt under public debt and restructure it
- (Ukravtodor, or State Service of Special Communications and Information Protection of Ukraine, is the agency within the Ministry of Infrastructure responsible for the road signs policy in Ukraine).
Background:
- The Budget Committee of the Verkhovna Rada proposes that the Parliament provide the government with the authority to postpone payments on external public debt until restructuring negotiations are completed.
- The Verkhovna Rada approved the law allowing the government to postpone payments on external public debt until 1 October 2024.
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How Much Does Ukraine Owe? G7 Leaders Agree To Lend $50 Billion But The War-Torn Country Is Heavily Drowned In Debt
Leaders of the G7 major democracies came to an outline agreement on Thursday to lend $50 billion to Kyiv in support of the country, using the interest from Russian sovereign assets that were frozen. Read on to know the details
- That represents a significant increase from the beginning of the conflict; as of the end of 2021, or about two months prior to the invasion, total debt was $98 billion.
- According to Reuters, a $3 billion bond and a $600 million loan payable to Russia are included in that total amount.
The current efforts to restructure the debt will only address a small portion of the total debt load, which is mostly the nation’s foreign commercial debt.
- According to ministry data, the total amount of outstanding Euro Bonds at the end of April was $19.67 billion, distributed across 11 euro-denominated bonds and 2 dollar-denominated bonds.
- Based on calculations released in April by JPMorgan, the total amount outstanding on the Eurobonds was $23.6 billion, including past due interest.
- It is a tool connected to the growth of the nation’s economic production.
- According to JPMorgan, Ukraine is $2.6 billion in debt for this instrument.
OTHER MAJOR LOANS
The government has guaranteed a $700 million note issued by the state agency for roads, Ukravtodor, and a $830 million note issued by the state grid utility, Ukrenergo. Bondholders have additionally consented to a corresponding two-year embargo on the two businesses, which will likewise expire in a few months.
A total of $7.5 billion in loans from official creditors, including the United States, Canada, France, Germany, Italy, Japan, Netherlands, Poland, and Britain, are owed, with Canada alone owing somewhat over $5 billion. The freeze has been extended by these governments until 2027.
Similar to domestic debt, about two thirds of the nearly $70 billion in external state and state-guaranteed debt owed to multilaterals is not eligible for restructuring.
- The International Monetary Fund is owing little more than $16 billion of that total.
- As part of an ongoing $15.6 billion loan program, the IMF is set to provide an additional $2.2 billion to Ukraine.
- A crucial component of the commercial debt restructuring will be the investigation of the Fund’s debt sustainability.
$1.63 billion was the total amount of state debt owed on loans or other commercial bank debt externally as of April.
- Approximately $700 million of this debt is owed to the massive American agribusiness company Cargill.
- The debt from loans to foreign commercial banks totaled just over $1 billion inside the state-guaranteed sector, of which $830 million was payable to the Export-Import Bank of China.
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