Ukraine secures debt write off in deal with creditors

27 Aug 15

Ukraine and its creditors have agreed a debt-restructuring package that will see $4bn written off and maturities extended for four years.

The country has accumulated loans worth $40bn over the past five years, which it has been struggling to service. Negotiations on the debt, led by Ukraine’s finance minister Natalia Jaresko, began six months ago and agreement was reached today.

Prime minister Arseniy Yatsenyuk described the debt as an “incredible burden on the Ukraine’s state budget and on each citizen of the country”.

He hailed the deal, which comes after the country’s economy has been hindered by unrest in the east of the country and Russia’s annexation of Crimea, as the best achieved by any large non-eurozone country since 2000.

“There was little hope that Ukraine would successfully conclude negotiations with our external creditors. The default so much expected by our enemies is not going to happen.”

The terms of new deal will see 20% of Eurobonds written off – equivalent to $4bn, while the cost of servicing the debt will not increase.

In addition, loans and bonds that were due for repayment this year have been prorogued for four years.

Yatsenyuk thanked the creditors for accepting Ukraine’s proposal, which he said was a contribution to the economic and financial stabilisation of the country.

He noted that the Russian Federation has not joined the creditors’ committee. “Therefore, the government of Ukraine officially declares that Russia, under no circumstances, will get better terms than other lenders. It’s their decision. Either you accept our terms, or you will never get better terms,” the prime minister said.

He also pledged that the money released from the refinancing package would be used to improve social standards in the country and the government would take action to encourage investment in Ukraine to drive economic growth.

The International Monetary Fund welcomed the agreement. Managing director Christine Lagarde said: “The announced parameters of the agreement will help restore debt sustainability and – together with the authorities’ policy reform efforts – will substantively meet the objectives set under the IMF-supported programme.

“Specifically, full implementation of the agreement will provide the targeted external debt service relief, reduce annual post-programme gross financing needs as envisaged, and place public debt on a clearly downward path. It is therefore important that the agreement gains broad support by all concerned Eurobond holders.

“I am very pleased with today’s announcement and appreciate the positive attitude of both the ad hoc creditor committee and the Ukrainian government. Let me highlight in particular the hard work by the finance minister and her team that made this agreement possible.”

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