Ukraine has received a debt repayment grace period from the Group of Creditors of Ukraine that will help prevent the financial implosion of the beleaguered country.
The group, which includes Canada, France, Germany, Japan, United Kingdom, and the United States of America, has announced the extension of debt repayment from August 1st to the end of 2023, with a possible extension for an additional year.
“In this context, today’s request from Ukraine—for a concerted suspension of debt service due to bondholders and for an extension of payment maturities—is welcomed,” the creditors said in a collective statement.
They “also strongly urged bondholders and warrant holders to consent to Ukraine’s requests.”
According to the Ukrainian government, it has “received explicit indications of support for the proposals with respect to both its Eurobonds as well as GDP-linked securities” from “Amia Capital, BlackRock, Fidelity International (FIL) and Gemsstock, among others.”
The debt relief comes as Ukraine is facing $1.2 billion of debt payments due at the beginning of September, according to Reuters, and a serious shortfall in cash flow—due to the Russian invasion that started at the end of February.
“The disruption to fiscal cash flows and increased demands on government resources caused by the war has created unprecedented liquidity pressures and debt servicing difficulties,” the finance ministry said.
Ukraine currently suffers a $5 billion-a-month fiscal shortfall, according to the government.
Reuters reports that under the Ukrainian proposal all its bond interest payments would be deferred, but to avoid what would be classed as a ‘hard default’ it also offered to pay lenders additional interest payments once payments resumed.
“We are truly grateful to Ukraine’s international partners within G7 countries and the Paris Club for this debt suspension. This provides great support for Ukraine’s state finances during the most challenging time of our history,” Sergei Marchenko, Minister of Finance of Ukraine said in a government statement. “The announced debt suspension from the official sector will allow Ukraine to channel scarce resources toward the most urgent war-related priorities, including military, social, and humanitarian needs.”
Ukraine has received $38 billion in international financial support from the International Monetary Fund, World Bank, and Western governments since the outbreak of war, but 80% of it has been in the form of loans instead of direct aid, according to Reuters.
Bridget Ryder is Spain-based writer. She has written on politics, environment, and culture for American and international publications. She holds degrees in Spanish and Catholic Studies.