Kyiv has one month to agree with international creditors on debt restructuring and avoid a default, The Economist reports, UNN reports.
Details
According to the publication, over the past two years, Ukraine's creditors have agreed to suspend debt service payments. The deferral - from both public and private creditors - amounts to 15% of GDP per year.
According to The Economist, if the payments were mandatory, they would become the second largest government expenditure after defense. However, the moratorium on the part of private foreign bondholders, including France's Amundi and the US-based Pimco, is now set to expire on August 1.
"Thus, Ukraine has a month to avoid default," the newspaper writes.
The IMF is reportedly interested in Ukraine agreeing on a debt restructuring. However, The Economist believes that a deal seems unlikely in the remaining time.
If Ukraine defaults, it could undermine private investors' confidence in Western commitments. In the long run, this could spell disaster for the country's recovery, writes The Economist.
In June, Ukraine offered its creditors a deal that cut 60% of the current value of its debts. The creditors coldly replied that they considered 22% more reasonable.
According to the publication, Ukraine is in desperate need of financial assistance. The amounts provided by allies are impressive, but they come in the form of artillery, tanks, and earmarks, not cash. Only $8 billion of the recent U.S. package will go directly to the Ukrainian government, equivalent to just over a quarter of Ukraine's annual social assistance spending, and even that is in the form of a loan. The European Union reportedly plans to offer slightly more, but still only $38 billion over three years.
According to IMF representatives, with a radical restructuring such as the one that Ukraine has proposed and the bondholders have rejected, "the country will only be able to make ends meet." For their part, bondholders doubt that the Fund can be so confident, especially since its analysis is several months out of date.
The Economist writes that in the absence of a deal, Ukraine has two options. One is to agree to extend the moratorium on debt service, as has already been done with official creditors, who will refuse to make payments until 2027. The other option is to default.