Ukraine seeks a debt freeze as war ravages the economy.

Faced with an estimated 35 to 45% drop in GDP this year due to Moscow's invasion in February, Ukraine's finance ministry said it hoped to finalise the deferral of its roughly $20 billion in debt by Wednesday, Aug. 9.

0
2
ukraine

Ukraine has asked its international creditors, including Western powers and the world’s largest investment firms, to put a two-year moratorium on debt payments to focus its dwindling financial resources on repelling Russia.

Faced with an estimated 35% to 45% drop in GDP this year as a result of Moscow’s invasion in February, Ukraine’s finance ministry said on Wednesday that it hoped to finalise the debt deferral by Aug. 9.

The postponement, which was quickly supported by both major Western governments and heavyweight funds that have lent to Kyiv, would come just in time to postpone around $1.2 billion in debt payments due at the beginning of September.

The government’s proposal, which was posted on its website, stated that all bond interest payments would be deferred under the plan, but to avoid a hard default, it also offered lenders additional interest payments once the freeze ended.

“The disruption to fiscal cash flows and increased demands on government resources caused by the war have created unprecedented liquidity pressures and debt servicing difficulties,” according to the finance ministry.

It came amid signs that Moscow is stepping up its offensive, with Russian Foreign Minister Sergei Lavrov saying on Wednesday that Moscow’s military objectives in Ukraine have expanded beyond the eastern Donbas region.

Ukraine estimates that the war’s costs, combined with lower tax revenues, have resulted in a $5 billion monthly fiscal shortfall, or 2.5 % of pre-war GDP. Economists estimate that this raises the annual deficit to 25% of GDP, up from 3.5% before the conflict.

The debt freeze is estimated to save Ukraine $5 billion over the deferral period.

“We, as Ukraine’s official bilateral creditors, intend to provide a coordinated suspension of debt service,” a group of governments led by the United States, Canada, France, Germany, Japan, and the United Kingdom said shortly after Ukraine’s proposal.

“We also strongly encourage all other official bilateral creditors to reach an agreement as soon as possible,” the group added.

LEAVE A REPLY

Please enter your comment!
Please enter your name here