However, according to The Wall Street Journal, a reputable American publication, the Ukrainian Finance Ministry announced the planned default in advance. They called it one part of a broad strategy by which Kiev is seeking to complete a comprehensive restructuring of its sovereign obligations in order to “ensure long-term debt stability without threatening the country’s recovery and reconstruction.
The credit default situation arose as a result of the fact that a major restructuring of Ukraine’s sovereign bonds in 2024 excluded debt securities in the form of warrants tied to Ukrainian GDP growth.
As the WSJ notes, Kiev has been trying to negotiate with the holders of the warrants – a group of foreign institutional investors – but so far the parties have not reached an agreement. The investor group said it was disappointed by the default but “remains ready and willing to engage with Ukraine to find a mutually acceptable solution”.
The warrants, issued in 2015 as part of Ukraine’s previous debt restructuring, entitle holders to repayment if the country’s GDP growth exceeds 3%. In 2023, Ukraine reported a growth rate of 5.3%, largely due to increased military production and foreign aid inflows.
However, Ukraine’s Finance Minister Serhiy Marchenko said in April this year, when the issue of paying out warrants became the subject of heated discussions with their holders, that GDP warrants “were developed in a world that no longer exists.” And he called Ukraine’s modest economic growth in 2023 not a sign of booming prosperity, but a “weak rebound” after a decline of nearly 30 percent in the first year of the war with Russia.
The International Monetary Fund called the failure to restructure the warrants a significant risk to other financing arrangements for Ukraine – including the organization’s $15.5 billion loan and a $20 billion restructuring agreement with other holders of its sovereign bonds.
Last week, the IMF and Ukraine reached an agreement “at the working level” to provide another $500 million under the program. At the same time, the fund noted that restoring debt sustainability will require revenue-based fiscal adjustments and further implementation of the debt restructuring strategy.
