Ukraine Reaches Crucial Debt Relief with Creditors as part of IMF Rescue Plan
Ukraine has reportedly reached a crucial debt deal with its international bondholders believed to be a key step in unlocking the billions of dollars needed in emergency financing, helping the country avoid default while in attempt to cope with costs of the war-torn country.
20 percent of the investor’s holdings will be written off as part of the deal, shrinking the $19 billion in sovereign debt down to $15.5 billion, Prime Minister Arseniy Yatsenyuk told government officials.
By making this deal the payment period will be extended by four years through 2027, and will be determined on the growth rate of the economy. Should the growth rate be less than 3 percent annually, Ukraine will pay nothing toward the government bonds.
“It gives us breathing space,” Finance Minister Nathalie Jaresko said in an interview with reporters. Ukraine bonds jumped by approximately 18 percent after news of the deal was made public.
In February the IMF anncounced they would raise $40 billion for relief efforts, with $15.5 billion amounting to new loans from the IMF, leaving smaller sums coming from alternate sources. Renegotiations of debt may unlock more than a third of the total. Ukraine has made exemplary efforts to reform its economy and political system, as deemed by the IMF earlier in August, and has insisted that an agreement on debt relief with private sector bondholders is needed.
With Russia refusing to take part in the restructuring of the $3 billion in bonds bought under the old government, Yatsenyuk told government officials on Thursday that Russia would not see better conditions with their refusal to take part in meetings.
Ukraine’s economy contracted by an astonishing 17.6 percent in the first quarter of this year compared to last year when dealing with the separatist conflict in the east.
Government officials praised the debt relief agreement commenting this is a “critical step towards macroeconomic stability, creating a healthy economy and attracting international investment.”
The saved 20 percent will be put toward national defense and social issues. “We will seek out additional support in particular on the investment side for public sector infrastructure projects” said Finance Minister Jaresko.