Debt Restructuring Deal Reached

UKRAINE - In Brief 22 Jul 2024 by Dmytro Boyarchuk
Ukrainian authorities and private bondholders have reached an agreement on debt restructuring. Details are already in all media outlets: nominal losses of 37%, bond repayments starting in 2029, and coupon payments from 2025 (starting with 1.75% in 2025). Sources informed about the negotiations commented that the deal was closer to Ukraine’s position. I would say that it was a substantial concession on the part of the Ukrainian Ministry of Finance to make the deal "somewhere in the middle," given that the sensitivity to a potential default is near zero. After everything that has happened in the country and all the difficulties Ukrainians are enduring, the news about the lack of an agreement a week ago primarily concerned a narrow group of experts. Put differently, it seems that the public would have ignored the Ministry of Finance canceling payments without any agreements (no bank run, no panic demand for foreign currency). Probably, the lack of public reaction to the ‘no agreement’ news made the creditors more willing to accept the Ministry's proposals. Another important point about the debt restructuring issue is that President Volodymyr Zelenskiy is planning to change the Cabinet. Although he has intended to do this several times before, this time he seems more determined. In this context, the Ministry of Finance was considered immune to replacements due to the debt restructuring talks. Now that the deal has been reached, the prospects for the Ministry of Finance might be reassessed. If that is the case, the Cabinet might also take responsibility for potential tax increases, and then the replacements will be arranged.

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