Ukraine's financial crisis: Looming insolvency amid war pressures
The British magazine "The Economist" claims the war is putting immense pressure on Ukraine's economy. The country's GDP is decreasing, and the National Bank of Ukraine is depleting its foreign currency reserves. As a result, it faces a potential massive financial crisis and insolvency.
The portal "Biełsat," citing "The Economist," highlights Ukraine's difficult financial situation. Creditors have agreed to postpone debt servicing for two years. The moratorium expires on August 1.
"The Economist" asses that Ukraine has a month to avoid insolvency. The International Monetary Fund is trying to persuade Ukraine to agree to a debt reduction, but in the remaining time, reaching an agreement is unlikely. If Ukraine fails to meet its obligations, it would signify a troubling lack of private investors' confidence in Western commitments. In the long run, this could spell disaster for the country's economic recovery.
The British portal points out that countries undergo restructuring during wartime to ensure access to financial markets. Quick restructuring takes months and complex – years. However, since the beginning of the war, Ukraine has been closed to capital markets, meaning these procedures are not urgent.
Ukraine and Western aid
"The Economist" emphasizes that Ukraine desperately needs "fiscal breathing room." The aid provided by allies comes in the form of weapons, equipment, and targeted funds, not free cash.
The latest aid package from the USA will provide 8 billion dollars to the Ukrainian government, which is a quarter of the annual spending on social benefits and loans. The EU is set to provide 38 billion dollars over the next three years.
Although the amount Ukraine wants to receive is quite modest – 12 billion dollars between 2024 and 2027 – without the aid, the country does not have the means to cover it. According to the IMF, with the radical restructuring proposed by Ukraine, the country will merely be able to make ends meet. On their part, bondholders doubt whether the Fund can be so confident, especially since its analyses might already be outdated, cites the "Biełsat" portal.
What options does Ukraine have?
Ukraine must rely on creditors. One survival option is to extend the moratorium. Another option is an insolvency procedure. In this case, Ukrainian payments would be suspended.
"The Economist" claims that private investors' restraint reflects not only Ukraine's financial prospects. In expected restructuring, creditors bet on the country's economic prospects. Lending to a nation at war assumes its victory. Much depends on the level of Western support. However, the magazine adds that bondholders are skeptical about Ukraine's long-term recovery plans in the event of its victory.
