The Standstill agreement expires. What’s next?
In addition to the new obligations assumed by Ukraine during the war, which will need to be paid off in the future, Ukraine’s public debt is also formed by old loans that are coming to the end of their term.
For example, before the war, a significant part of our debt burden was made up of Eurobonds, which accounted for almost 25% of Ukraine’s loan portfolio. In 2022, Ukraine signed the Standstill agreement, under which payments were postponed for two years, i.e. until 2024. And this is already next year.
According to Maria Repko, deputy director of the Centre for Economic Strategy, if the war continues next year (and we understand that this is the most likely scenario), our country will need to restructure (revise the interest on the loan, its amount, and repayment terms) or extend the Standstill agreement.
“If the war ends, Ukraine will have a lot of options. These options will include debt service on the same terms as before the war,” she said.
According to her, Ukraine may be able to take advantage of the German case, which after the Second World War had half of its debt cancelled and the repayment of the other half tied to economic growth and exports. However, in this case, guarantees from the US Treasury, the European Union or other major global players will be required.
Another problem for Ukraine is its debts to the International Monetary Fund, which are shorter and more expensive than concessional loans from the European Union – interest rates are 5-6% per annum.
However, as Repko noted, the IMF has changed its own rules by launching a new programme of cooperation with Ukraine in a state of war. It is a kind of anchor for other financing programmes for our country.
Today, with new borrowings from the IMF, Ukraine is essentially paying off the loans it received from the Fund in the past.
“This programme is a way to refinance the tranches that Ukraine already has to repay to the Fund. One of the largest external debt payments that Ukraine has now – both interest and principal – is the debt to the IMF. Since it is impossible to restructure anything to the IMF, defaulting to the IMF is also not an option, this new programme is a way to refinance the debt,” Repko commented to UNIAN.
The expert added that Ukraine may discuss debt relief with the IMF in the future. This could be achieved through preferential interest payment terms through donor contributions from other IMF member countries, as it was the case during the coronavirus pandemic.
Comment for UNIAN.