Ukraine's public debt needs 'deep treatments' - IMF
MOSCOW. March 26 (Interfax) - Ukraine's public debt needs "deep treatments" but even if successful, restoring debt sustainability will still require significant fiscal adjustment and financing exclusively by donors, the International Monetary Fund said.
"Sufficiently deep debt treatments would be needed to decisively restore debt sustainability and support adequate levels of international reserves," Ukrainian media reported, quoting IMF information following the third review of the Extended Fund Facility Arrangement for Ukraine.
The IMF said that since the second review of the EFF program in December 2023, the dynamics of debt and Ukraine's ability to finance it are limited under both the baseline and downside scenarios, and even with fiscal adjustment and official support, these indicators continue to be past manageable levels.
The documents do not directly mention the desirability of partial debt write-off, while the IMF says Ukraine needs to reduce public debt to 82% of GDP by 2028 and to 65% of GDP in 2033.
Among the restructuring targets, it is also stated that gross financing needs should average 8% of GDP in the post-program period (2028-2033).
Additional restructuring targets, besides reducing debt to 82% of GDP by 2028, include lowering the cost of servicing debt on external obligations to 1-1.8% of GDP (from $1.9 billion in 2024 to $3.5 billion in 2027).
According to the IMF information, Ukraine's authorities and their debt advisors are finalizing technical work with a view toward designing a debt operation aligned with the program's debt sustainability targets. They plan to present initial proposals to creditors shortly, in line with their intention to conclude the restructuring by mid-year and ahead of the expiry of the debt standstill in August 2024.
"Thus, [IMF] staff continues assessing public debt as sustainable on a forward-looking basis," according to the updated program.
"As part of the external commercial debt treatment, which we plan to complete by mid-2024, we will seek to obtain adequate relief from debt flows, including from external commercial debt restructuring, in 2024 and beyond in accordance with the program's parameters," the Ukrainian authorities said in an updated financial and economic policy memorandum.
A medium-term debt strategy will be drafted and published by the end of this year to reflect these changes, the memorandum says.
As reported, ahead of the International Monetary Fund's approval of a new four-year EFF worth $15.6 billion at the end of March 2023, the group of Ukraine's formal creditors (the Paris Club) following a meeting with IMF and World Bank representatives provided financial guarantees for the program. This includes further standstill in Ukraine's payment of debts to the group members throughout the EFF period (2023-2027). The standstill is conditioned on similar actions of Ukraine's private foreign creditors, mostly Eurobond holders.
The Ukrainian Finance Ministry said in March 2023 that the Ukrainian government pledged to take a number of measures in the EFF period to manage the sovereign debt and achieve three objectives, namely, restore debt sustainability, maintain liquidity and reduce the financing gap, and create the necessary conditions for the participation of the commercial sector in the post-crisis recovery.
"The Ukrainian authorities will explore a number of alternate scenarios to ensure the debt payment and maximize the efficiency and success of the process, while being aware of the goal of the soonest restoration of Ukraine's access to the market. The Ukrainian government has hired financial and legal consultants to support the process," the ministry said at the time.
The ministry was expecting to begin talks with commercial creditors on a new rescheduling at the beginning of 2024, so that the talks could be finalized by mid-2024.
Foreign holders of Ukraine's Eurobonds are in talks to form a creditors committee ahead of a debt restructuring dialogue with the country, with talks possibly beginning ahead of the IMF's spring sessions, scheduled to begin April 17 in Washington, Reuters reported a few days ago.