Ukraine plans to reduce its debt to the pre-war levels by 2024.
The Ukrainian Cabinet of Ministers has agreed on Ukraine’s debt policy until 2024 and set an ambitious goal of reducing debt to 47 percent of GDP by the end of 2024. The current debt is around 60 percent, which is lower than the record 80.9 percent in 2016.
47 percent will be the lowest level since the Maidan Revolution and the war that broke out in Eastern Ukraine in 2014 and be a milestone for Ukraine. The plan involves several steps to achieve the aim of decreasing debt over the next four-year period.
Firstly, the Cabinet of Ministers wrote that they will review its public debt, which includes an analysis of its debt plus its risks and costs. The aim is to increase the share of Ukraine’s debt in hryvnia and reduce its debt in foreign currencies and extend the loan periods.
The Cabinet of Ministers informs that they want to attract long-term concessional financing, develop stronger relations with their investors and strengthen debt management.
“For the first time, the strategy in an updated format that is closer to international practices was approved in 2019 and proved to be an effective tool to increase transparency in decision-making and improve communication with both investors and international partners. Thus, its implementation has already achieved important goals: increasing the share of public debt in national currency (from 33.4% in 2018 to 38.2% in 2020), improving the structure of public debt by maturity, and raising Ukraine’s international ratings,” writes the Cabinet of Ministers in a press release.
Ukraine Government Debt to GDP in percentage:
source: tradingeconomics.com
Better with IMF relationship
The news of the debt plan comes after the International Monetary Fund, IMF, recently decided to continue payments of the $5 billion 18-month Stand-By Arrangement, which was signed in June 2020. As a result, Ukraine recently received $699 million and the move comes after several months where Ukraine has been put on ice.
“It is very good for Ukraine that the IMF decided to give the next tranche and extend the loan program until June next year,” said Kristian Andersson, the head of the Swedish bank SEB in Ukraine, recently to Ukrainenu, “It is important to international investors outside of Ukraine when an IMF program is up and running. The IMF is an anchor to them – a good signal.”
Andersson points out that it looks like that the IMF and Ukraine will try to agree on a new loan program next year as well, which could be for three or five years.
“Ukraine’s IMF supported economic program aims to help the authorities address the effects of the COVID-19 shock, sustain the economic recovery, and move ahead on important structural reforms to reduce key vulnerabilities,” wrote the IMF about the new payments, which came as a bit of a surprise after the loan deal has been halted since last year.
The IMF decided to halt payments after concerns about the independence of the National Bank of Ukraine, lack of reforms, and an attempt by the Ukrainian government to have stronger price control over utilities such as gas and electricity. The recent continuation of the loan program raises hopes that new reforms will be on their way.
