Police officers look at a bus stop, a mosque and buildings damaged by a Russian military strike as Russia’s invasion of Ukraine continues July 20, 2022 in Kharkiv, Ukraine. R/Nacho Doce
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Kyiv/LONDON, July 20 (R) – Ukraine has asked its international creditors, including Western powers and the world’s largest investment firms, to freeze its debt payments for two years so it can focus its dwindling financial resources on fighting off Russia.
With GDP slumping by an estimated 35% to 45% this year following February’s invasion of Moscow, Ukraine’s finance ministry said on Wednesday it hoped to complete the forbearance on its roughly $20 billion debt by August 9.
The delay, which was swiftly supported by both major Western governments and big funds that have been lending to Kyiv, would come just in time to postpone about $1.2 billion in debt payments due in early September.
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The government’s proposal, published on its website, said all of its bond interest payments would be deferred under the plan, although it also offered lenders additional interest payments to avoid a hard default once the freeze ends.
“The war-induced disruption to fiscal cash flows and increased demand for government resources have resulted in unprecedented liquidity pressures and debt-servicing difficulties,” the Treasury Department said.
Russian Foreign Minister Sergei Lavrov said on Wednesday that the Kremlin’s military objectives in Ukraine now extend beyond the eastern Donbass region. Continue reading
Ukraine has estimated that the cost of the war, combined with lower tax revenues, has left it with a monthly budget deficit of $5 billion – or 2.5% of pre-war GDP. Economists calculate that the annual deficit will rise to 25% of GDP, compared to just 3.5% before the conflict.
Moreover, researchers from the Kyiv School of Economics estimate that it will already cost over $100 billion to rebuild Ukraine’s bombed-out infrastructure, while the head of the EU’s powerful financial arm, the European Investment Bank, has warned it could cost trillions could go. Continue reading
It is estimated that the debt freeze could save Ukraine around $5 billion during the grace period.
“We, as Ukraine’s official bilateral creditors, intend to provide a coordinated debt service suspension,” a group of governments including the United States, Canada, France, Germany, Japan and Britain said shortly after Ukraine submitted its proposal.
“We also strongly encourage all other official bilateral creditors to reach an agreement quickly,” the group added.
Ukraine bonds collapse after invasion
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Finance Minister of Ukraine Sergii Marchenko said in a statement that the plan had also received “explicit indications of support” from some of the world’s largest investment funds, including BlackRock, Fidelity, Amia Capital and Gemsstock.
Wednesday’s move was something of a reversal from Kyiv, which has repeatedly said in recent months it wants to maintain debt payments despite the war.
However, speculation that a debt-freeze filing could be imminent was fueled last week after state-owned energy company Naftogaz also filed a filing. Continue reading
“A proper restructuring has yet to happen,” said Viktor Szabo, portfolio manager at abrdn, which holds Ukrainian government bonds. “But it cannot be done before the situation on the ground returns to normal, ie at least a sustainable ceasefire.” Read more
Ukraine has a plethora of borrowings totaling over $20 billion in loans. The government also plans to defer payment of a growth-linked “warrant” offered after the last restructuring in 2015, which should pay investors handsomely when the economy picks up speed.
Tymofiy Mylovanov, an adviser to Ukraine’s presidential office, has been urging western countries to increase their financial support in recent weeks.
Global institutions like the International Monetary Fund, the World Bank, and Western governments have pledged to provide $38 billion since the invasion, though almost 80% of that support is in the form of loans rather than aid.
Through a spokesman, the IMF said “in general, voluntary preemptive agreements would be a net positive for the outlook.”
Last week, the fund said grant funding from the international community was a priority for Ukraine’s immediate and short-term funding, as it would allow the government to remain operational without further debt. Continue reading
Wednesday’s move had little impact on Ukraine’s bonds, most of which had already fallen more than 80% since Russia began building up its troops on Ukraine’s borders late last year.
“There’s quite a lot of support in the market to agree with that,” said Petar Atanasov, co-head of state research at specialist distressed debt fund Gramercy.
“Unfortunately, there is no sign of peace or a truce on the horizon.”
($1 = 29.5000 hryvnia)
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Additional reporting by Karin Strohecker in London and Leigh Thomas in Paris; Edited by Timothy Heritage, Elaine Hardcastle, Toby Chopra and Jonathan Oatis
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