Ukraine is poised to take on the extraordinary task of restructuring its debt in the midst of a war that has claimed tens of thousands of lives, more than two years into the conflict.
The Russian invasion in early 2022 caused a sharp decline in Ukraine’s economy. Although the country has shown remarkable resilience since then, the initial shock compelled Kyiv to ask for a two-year suspension of debt payments in order to prevent a default.
There is not much time left for Ukraine to either restructure its debt, which is the government’s preferred course of action, negotiate an extension of the payment freeze with bondholders, or risk a hard default. This freeze expires in August.
G7 Leaders Agree To Lend Ukraine $50 Billion
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 following Moscow’s invasion of its neighbour.
By the end of April, the entire amount of Ukraine’s government-guaranteed debt was $152 billion, according per the Finance Ministry’s figures. 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.
Over 70%, or $108.4 billion, of the total amount of outstanding debt at the moment is external. The balance consists of domestic debt, almost all of which is in the form of municipal bonds with terms ranging from one year to thirty years.
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How Much Money Does Ukraine Owe?
According to Reuters, a $3 billion bond and a $600 million loan payable to Russia are included in that total amount. Leaving aside this assertion—which is being contested in English courts—Ukraine owes $104.8 billion in external debt.
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.
Debt to private creditors designated for restructuring is issued as GDP warrants and Eurobonds. According to ministry data, the total amount of outstanding eurobonds at the end of April was $19.67 billion, distributed across 11 eurodenominated bonds and 2 dollardenominated bonds.
Based on calculations released in April by JPMorgan, the total amount outstanding on the Eurobonds was $23.6 billion, including past due interest.
A GDP warrant, which was established during Ukraine’s 2015 debt restructuring in response to Russia’s invasion of Crimea as a way to appease creditors, is also subject to restructuring. 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
STATE-GUARANTEED DEBT
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.
QUADRANT DEBT
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.
COLLABORATIVE DEBT
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 programme, 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.
LOANS AND MONEY OWED TO BANKS
$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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