OPINION: The reconstruction of Ukraine will be crippled by the debts it owes to the IMF and other institutionsterritorial and military gains against invading Russian forces on the eastern front. But how is the country faring on the ‘western front’?
Some have suggested that the dangers confronting the Ukrainian state come not only from Russian tanks but also Western banks and, more specifically, from Ukraine’s growing foreign debt.
This debt could hinder Ukraine’s spending on the war effort and drastically reduce its social spending. It also means that, once the war is over, Ukraine could face considerable pressure from its creditors on how the county’s reconstruction should happen.
According to Ukraine’s economy minister Yulia Svyrydenko, the Russian invasion has already cost Ukraine $564.9bn (£494.5bn) in destroyed infrastructure and lost economic growth. Post-war reconstruction costs so far are estimated at nearly $750bn (£632bn).about the post-Soviet world.
At the same time, inflation is soaring and the country’s currency, the hryvnia, is collapsing – partly because, due to a lack of investor interest, the country’s central bank had to buy bonds issued by the government to fund the war effort. Subsequently, the bank more than doubled interest rates – to 25%, the highest in Europe – to fight the inflation it had helped create.Temporary debt freeze.
Ukrainians and their global supporters have long campaigned for debt relief. Finally, in August, after months of pressure and with $1bn (£840m) of bond payments due on 1 September, Kyiv was granted a temporary freeze on debt payments. This suspends Ukraine’s need to service significant debts until the end of 2023, and potentially for another year.
Campaigners for Ukrainian debt relief rightly noted this as a positive development. However, the debt cancellation that some had hoped for now seems unlikely, and the debt excludes major creditors such as the International Monetary Fund (IMF) and the World Bank. The European Commission, which has loaned Ukraine more than €13bn (£11.4bn), also did not join the deal.
Before the freeze, Ukraine had already spent $2.8bn (£2.4bn) this year just on servicing its debt. To put this in perspective, it is a third of what the government has spent on social welfare during the Russian invasion.Some major Ukrainian companies are also facing debt problems. In July, Naftogaz, the part-state-owned energy company, defaulted on payments to some bondholders who had not signed up to deferral plans. Ukrainians can’t afford to pay their utility bills (domestic gas prices have increased 650% since 2014), which contributed to Naftogaz’s default – but it’s vital that the company continues to function as the country enters winter.
Roads agency Ukravtodor and electricity company Ukrenergo – both state-owned – managed to negotiate a two-year freeze on $1.5bn’s worth (£1.26bn) of bond payments due at the end of the year. However, their debts are state-guaranteed, so the Ukrainian government will be responsible if there are problems with future payments.but not from the IMF and World Bank
International financial institutions that have loaned huge sums to Ukraine since the start of the war in Donbas in 2014 are insisting that the country continues to pay its debts to them – plus the associated interest, charges and fees. The annual meetings of the IMF and World Bank last month didn’t even discuss suspending, relieving or forgiving Ukraine’s debt.
The long list of monetary problems that Ukraine is facing means that, once the war is finally over, the country will have to dance to the tune of the IMF and World Bank
