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relevant jurisdictions. Estimates suggest these annual revenue flows could range between $5bn and $10bn. The G7 communiqué stated that nations “will work to obtain approval in these jurisdictions” to implement the plan. However, this decision does not involve the seizing of the principle frozen assets, which some countries wanted.
Ukraine’s need for external financing is significant. Since the war began in February 2022, international partners have provided around $85bn in budget financing, including $36bn from the EU and $23bn from the US. Despite this, Ukraine’s budget deficit for this year alone is estimated at $45bn.
“The $50bn loan is a substantial commitment,” said Liam Peach, the senior emerging market economist with Capital Economics. “It ensures continued support for Ukraine amidst potential political changes in the West, such as a possible victory for Donald Trump in the upcoming US election.”
Nevertheless, Ukraine’s overall financing needs exceed $100bn annually, and post-war reconstruction costs are estimated at over $400bn. Much of this will likely require private investment.
The debt repayment moratorium with private creditors, agreed shortly after the start of the war in 2022, is set to expire on August 1, 2024. If not extended, Ukraine would need to resume payments, estimated at $3bn to $4bn per year. Although Ukraine’s gross foreign exchange reserves stand at $39bn, using these funds for debt payments would detract from essential military and reconstruction needs.
Ukraine’s Finance Ministry prefers a debt restructuring over a continuation of the payment suspension post-August. “A debt restructuring would help Ukraine regain market access and support post-war reconstruction,” the ministry stated. However, concerns remain about the country’s fragile macroeconomic fundamentals and long-term external financing.
The International Monetary Fund (IMF) has played a significant role in Ukraine since the conflict began, providing $8bn in state budget financing. The payment suspension on official bilateral debt will remain in effect for the duration of the IMF’s Extended Fund Facility (EFF), which concludes in 2027. The IMF insists that a debt relief agreement with private external creditors is crucial for ensuring Ukraine’s debt sustainability.
Regarding the potential debt restructuring, official creditors have committed to providing a final debt treatment before the last review of the EFF. This includes the necessary relief outlined in the IMF’s baseline debt projection and additional relief if required to restore debt sustainability.
For private creditors, Ukraine’s Finance Ministry proposed exchanging outstanding private foreign debt with new Eurobonds at reduced interest rates maturing between 2034 and 2040, alongside value recovery instruments linked to tax revenue targets. This proposal aims to create a manageable debt repayment profile while avoiding vulnerability to large, unexpected payments.
However, private creditors have not yet agreed on a new deal. A proposal for up to a 60% writedown was rejected, with external creditors advocating for a 20% reduction. According to IMF research, average writedowns during debt restructurings between 1815 and 2020 were around 40%, with larger
85 UKRAINE Country Report July 2024 www.intellinews.com