Ukraine's economic struggle intensifies as debt deadline looms

The British magazine "The Economist" claims that the war is putting immense pressure on Ukraine's economy. The GDP is decreasing, and the National Bank of Ukraine is depleting its foreign currency reserves. The country 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 British portal points out that countries undergo restructuring during wartime to ensure access to financial markets. Quick restructuring takes months; complex ones take years. However, since the beginning of the war, Ukraine has been closed to capital markets, meaning these procedures are not urgent.

"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.

From the latest aid package from the USA, $8 billion will go to the Ukrainian government, which is a quarter of the annual spending on social benefits and also in the form of loans. The EU is set to provide $38 billion over the next three years.

Although the amount Ukraine wants to receive is quite modest – $12 billion 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 On their part, bondholders doubt whether the Fund can be so confident, especially since its analyses might already be outdated, cites the "Biełsat" portal.

Ukraine must rely on creditors. One survival option is to extend the moratorium. Another option is an insolvency procedure, in which Ukrainian payments would be suspended.

"The Economist" claims that private investors' restraint reflects not only Ukraine's financial prospects. In normal restructuring, creditors bet on the country's economic prospects. Lending to a country 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.