By Luke LONDON, Sept 19 – The next stage of Ukraine’s billions of dollars in debt restructuring could be trickier than the first, but the head of the country’s debt agency told Askume he expected to reach an agreement with creditors soon.
Kiev deliberately left out $2.6 billion of costly “GDP warrants” and $825 million of state power company debt when it sealed its $20 billion sovereign restructuring last month . Now it has to finish the job.
After Russia annexed Crimea in 2015, Ukraine issued GDP warrants – bonds linked to economic growth – to facilitate debt restructuring.
But Kiev made a crucial omission: Unlike other warrant issuers, it has no cap on future payments, and it will be liable for larger annual instalments every year as its economy grows by 3% or more.
“This is the next task,” Yuriy Butsa, the head of Ukraine’s senior debt agency, said in a telephone interview, referring to the restructuring of the warrants. He added that he expects the work to be completed “in a relatively short time.”
Ukraine paid out $70.5 million in warrants in August, coinciding with a major restructuring in the country. But the next payment, due on May 31, 2025, is expected to be in the hundreds of millions of dollars as gross domestic product (GDP) rebounds from a nearly 30% contraction that fell 5.3% last year after Russia’s 2022 invasion.
Additionally, their costs can reach billions of dollars annually.
Busa said the “unique” structure of the documents meant they contained no blueprint for a restructuring, but added: “We plan to work on this in good faith just like the sovereign eurobond negotiations.”
War stress
Ukraine’s economy grew by just over 3% in the three years from 2012 to 2021, but some international agencies have forecast growth of around 6% by 2025 , and any ceasefire with Moscow to end the war is likely to result in reconstruction aid that would allow the economy to boost GDP for years to come.
Uncapped payments when warrants expire between 2025 and 2041 could cause Kyiv to lose 15% to 40% of its national wealth above the basic development threshold, hampering its reconstruction efforts.
Although the government has currently suspended these payments while it considers what to do next, it is necessary to do so if the country is to exit its current “default” status and re-enter international credit markets.
“We have to win this battle and then hopefully in 2026 or 2027 we can think about market access,” Busa said.
“We’re going to run a five trillion dollar deficit, and we certainly can’t do that using public sector money and money from Russia’s confiscated assets.”
When it came to the question of whether a more extensive reorganisation would be needed if the war lasted longer, the 40-year-old remained pragmatic.
“We hope it will not happen, but we do not rule it out,” he said. “This situation is not caused by unstable (fiscal) policies, but by war.”
Even after last month’s cuts, Ukraine’s debt-to-GDP ratio remains close to 100%, and the costs of the war mean it must rely heavily on international aid to meet its budget.
