Page 33 - Ukraine OUTLOOK 2024

assumed under the programme, receiving sufficiently concessional financing during and after the programme period, and the expected implementation of a debt restructuring.
Given the impact of the war, Ukraine’s public debt is expected to rise further, peaking at 98.5% of GDP in 2025 under the baseline and 138.2% of GDP in 2026 under the downside. Moreover, gross financing needs would remain very high in both scenarios.
Updated sovereign risk and debt sustainability analyses of both the baseline and downside scenarios by the IMF find that debt would be unsustainable without a debt treatment. Staff’s indicative modelling yields debt sustainability targets of a debt level of 82% of GDP in 2028 and 65% of GDP in 2033 and an average gross financing need of 8% of GDP over the post-programme period (i.e. 2028-33).
Additionally, it will be important for the authorities to seek meaningful flow relief from debt operations of 1.0-1.7% of GDP annually during the programme period (2024-27). In the downside scenario, delivering the debt and GFN targets would require a deeper debt treatment and higher programme-period grants (consistent with the assurances received). Nevertheless, further exceptional financing over 2028-2033 would still be needed in this scenario to attain the targets.
• Official bilateral debt: As announced by the Group of Creditors for Ukraine on March 24, 2023, a debt service standstill is in effect during the period of the EFF (2023-27) along with a commitment to a final debt treatment before the final review of the programme. The official creditors have committed to the level of relief necessary in the baseline and to provide additional relief as needed to restore sustainability if the downside scenario emerges.
• External commercial debt: Staff judges that a credible process to restructure these claims remains underway. Building off their March 24, 2023 announcement regarding debt restructuring, the authorities, with support from their advisors, are taking early steps to advance their strategy to implement a debt operation consistent with the parameters of the IMF’s debt sustainability analysis and embedding comparability of treatment with other creditors. They have conducted early outreach with creditors and the restructuring process is expected to begin soon. The authorities aim to finalise the debt operation at the latest by mid-2024.
• 5.1 Federal budget
President Volodymyr Zelenskiy signed the 2024 Ukrainian state budget into law on November 28; this dedicates 2% of GDP to military spending and a $43bn deficit.
Government expects next year’s central budget expenditures will be close to 43% of GDP. This is significantly above 27% of GDP in pre-war 2021, but substantially below 50%+ in 2022 and 2023.
In money terms, the expenditures in 2024 are planned to be nearly the same
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