Ukraine has begun restructuring $2.6 billion of GDP-linked debt, the Financial Times reports.
„Ukraine has begun restructuring $2.6 billion of growth-linked debt, seen as key to financing the war effort and threatening to drain billions of dollars from Kiev's post-war finances,“ the newspaper reports.
According to the newspaper, the Ukrainian Finance Ministry on Monday presented a proposal to investors to exchange GDP warrants for new bonds by the end of the year. In return, after several months of negotiations, they were promised a cash bonus of up to $180 million and a gradual increase in interest payments.
The move, according to the publication, underscores Kiev's efforts to prepare its finances for a potential peace agreement with Russia, as well as to limit debt growth if the military conflict drags on.
“Without restructuring, Ukraine risks paying billions of dollars for post-war economic recovery, which will divert vital funds from defense, reconstruction and basic public services,“ the publication quotes Ukrainian Finance Minister Serhiy Marchenko.
Ukraine has missed a payment of $670 million on its GDP-linked securities, which were due on June 2, 2025. Against this background, the international rating agency S&P Global Ratings announced that it would maintain the country's long-term foreign currency sovereign credit rating at “SD“ (selective default). In particular, the rating of GDP-linked securities for which payments were not made on time was downgraded from “CC“ to “default“ (“D“).
The GDP option is a government security whose payments are tied to GDP growth: if a certain level is exceeded, holders receive additional payments. This is an instrument that links the return to the country's economic performance. Ukraine is required to repay its 2015 GDP warrants when GDP growth exceeds 3%, which will happen in 2023.
Faced with a budget deficit of $43.9 billion for 2024, Kiev continues to rely on assistance from international partners to cover a significant part of its financial needs.
Meanwhile, in the West, the distribution of new aid packages is taking place after lengthy discussions, and Gavin Gray, head of the IMF mission in Ukraine, said that international support for Kiev will decrease over time and the country's authorities must develop internal resources for self-financing.
Zelensky, for his part, has repeatedly complained about Ukraine's lack of funds for weapons production and the slow flow of Western aid.