The war deals a devastating blow to Ukraine’s economy. The country’s GDP has shrunk by a quarter, gold and foreign exchange reserves are depleting, and Russian attacks on infrastructure are worsening growth forecasts.
About this write The Economist.
Analysts note that a two-year moratorium on debt service payments, which amount to 15% of GDP per year, ends on August 1. The IMF insists on writing off the debt, but a deal is unlikely in the remaining month. Ukraine’s default will undermine investors’ confidence in the West and threaten disaster for the country’s recovery. Wartime debt restructuring is a common practice, but Ukraine has been closed to capital markets since the start of the war, complicating the process.
It is noted that Ukraine has a month to avoid default. The IMF wants Ukraine to agree on debt cancellation, but in the remaining time, an agreement is unlikely. If Ukraine defaults, it will indicate an alarming lack of faith among private investors in the West’s commitments. In the long run, this could turn out to be a disaster for the country’s recovery.
Financial aid from the Allies is insufficient
Ukraine desperately needs financial support. Allied aid comes in the form of weapons and equipment, not cash. Only $8 billion from the recent US package will go to the government of Ukraine, while the EU plans to allocate $38 billion over three years. Ukraine is asking for 12 billion dollars for the period from 2024 to 2027, but does not have free funds to cover them.
Journalists inform that private investors doubt Ukraine’s financial prospects and long-term recovery plans. They fear that restructuring will be the first step in shifting the financial burden of war to the private sector.
