Ukraine agrees to $11 billion debt relief deal

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Ukraine has secured more than $20 billion in debt relief from private international bondholders, boosting Kiev’s race to finance an intense war effort against Russia.

Almost all of Ukraine’s bondholders voted in favor of a deal that will reduce the face value of their debt by more than a third and free up $11 billion for the country’s finances over the next three years by reducing interest payments, the Ministry of Finance said on Wednesday. Finances of Ukraine.

President Volodymyr Zelenskiy’s government negotiated one of the fastest and biggest sovereign debt deals in modern history over the past four months, even as Kiev pulled off a bold counter-invasion of Russia and pushed Western backers for more military aid.

Bondholders had granted a two-year moratorium on payments after Russia’s February 2022 invasion. But Ukraine needed deeper bond relief to keep IMF bailout loans flowing and eventually restore access to private finance .

Ukraine’s budget deficit has grown this year to finance its military operations as Russia has stepped up attacks on Ukrainian cities and infrastructure.

“This is an important step on Ukraine’s path to restoring long-term economic stability and will enable our faster re-entry into international markets once the security situation improves,” Ukrainian Finance Minister Sergii Marchenko said on Wednesday.

The restructuring will reduce the economic value of the debt by around 60%, with Ukraine resuming interest payments at a much reduced level after the suspension, which officially expired this month.

This will include bondholders directly canceling 37% of their debt. The “tournament” could be reduced to 25% if Ukraine’s GDP exceeds the IMF’s targets set for 2028.

Ukraine will resume interest payments at 1.75%, rising to 4.5% in 2026 and eventually to 7.75%.

A key test will come in 2027, when Ukraine’s official creditors are due to restructure their own debts at the end of Kiev’s current IMF program.

Ukraine is lobbying for more official financial support to support its war effort, on top of the nearly $90 billion raised since Russia invaded in 2022. This includes calls for loans to be funded from interest income paid on assets sanctioned reserves of the central bank of Russia.

Kiev is set to run a $43 billion deficit this year to cover higher military spending amid delays in Western aid earlier in the year.

Ukraine will have to cover a $35 billion budget gap next year, including a planned $12 billion increase in budgeted military spending, Prime Minister Denys Shmyhal said this month.

Ukraine last restructured its sovereign debt in 2015, when bondholders suffered a fifth of the economic fallout from Russia’s annexation of Crimea.

Ukraine also has yet to negotiate a separate restructuring of the $2.6 billion in growth-paying securities it originally issued in the 2015 restructuring.

Zelensky’s government said this week it would suspend payments for warrants from May next year, when a payment worth hundreds of millions of US dollars emerged.