Ukrainian Authorities anticipate a Commercial Debt Treatment in 2024
Kyiv, March 24, 2023. In the wake of Russia’s unprovoked invasion of Ukraine, Ukraine’s international partners have provided billions of dollars in budgetary and other support to the Ukrainian government. Such financial assistance has helped Ukraine maintain macroeconomic stability while dealing with the extraordinary social and humanitarian crisis caused by Russia’s war of aggression.
The Ukrainian government has reached agreement with the IMF staff on policies that could be supported by a new Extended Fund Facility (EFF). The Staff Level Agreement (SLA) sends a strong signal of international solidarity with Ukraine as Russia’s war enters its second year. The EFF, subject to the approval of the IMF executive board, would help ensure the country’s financial position remains robust over the next four years and will catalyze the delivery of additional official and multilateral support during the programme period.
The government anticipates that Ukraine’s macro-fiscal framework will remain sensitive to the evolution of the war over the coming months. However Ukraine’s is facing unprecedented balance of payment difficulties and public debt is assessed as unsustainable based on the IMF’s sovereign risk and debt sustainability framework for market access countries (SRDSF). This conclusion is based on, amongst other things, an assessment of the current financial position of Ukraine, the ongoing impact of the war on Ukraine’s economy and fiscal balance and the government’s anticipated funding requirements in the short and medium term.
Under these circumstances, the Ukrainian authorities have requested an IMF-supported programme to help address its balance of payments needs and to help restore the country’s medium term external debt sustainability. To this end, Ukrainian authorities are committed to undertake a debt treatment of Ukraine’s public external debt.
The Ukrainian authorities will assess a number of alternative scenarios for implementing the necessary debt treatment in order to maximize the efficiency and success of the process, being mindful of the objective to restore Ukraine’s market access as early as practicable. The Ukrainian government has retained financial and legal advisors to support this process.
The goals of the debt treatment will be threefold: (i) to restore Ukraine’s debt sustainability,
(ii) to preserve liquidity and reduce Ukraine’s financing gap during the programme period and
(iii) to create the necessary conditions for commercial sector participation in the post-war reconstruction of Ukraine. Discussions have been engaged with the official bilateral creditors regarding a debt treatment and they have committed to a two-step debt treatment as per the statement released by the Group of Creditors of Ukraine on March 24, 2023 (https://www.tresor.economie.gouv.fr/Articles/2023/03/24/group-of-creditors-of-ukraine-provides-financing-assurances-to-support-the-imf-s-approval-of-an-upper-credit-tranche-programme). Official creditors have committed to an “extension of the standstill from 1 August 2022 over the period of the IMF programme (2023-2027)” and “an additional debt treatment to restore debt sustainability, once the situation is stabilized or at the latest by the end of the IMF programme (2027)”. Donors and multilateral partners of Ukraine will continue supporting Ukraine by providing financing to meet the financing gap with a combination of grant and concessional financing during the programme period.
In August 2022 Ukraine reached agreement with its international bondholders which included, amongst other things, a voluntary 24-month deferral of debt service on Ukraine’s direct and state-guaranteed Eurobonds. Similar deferrals were agreed with other external creditors. These operations provided Ukraine with vital liquidity relief to help the government finance essential social and humanitarian needs caused by Russia’s war. Bearing in mind the deferrals of debt service Ukraine has already secured through 2023 and much of 2024, and in order that the debt treatment be based on the most current macro-fiscal framework and debt sustainability assessment in the anticipated IMF supported programme, the Ukrainian authorities expect to begin discussions with commercial creditors in early 2024. The goal will be to complete the needed commercial debt operation as quickly as possible, and no later than mid-2024.