Encouraging private creditors to reach a “fast” agreement with the Ukrainian government to avoid defaulting on billions of his debt payments at the beginning of next month, the Commission expressed its call before the end, on 1 August, of a two-year moratorium on Ukraine’s interest payments on private creditors’ loans, which had been agreed shortly after the start of the war with Russia in February 2022. The deal amounts to about 15% of Kiev’s annual GDP or $20 billion. “It is essential that Ukraine and international bondholders quickly find a fair agreement on the parameters of restructuring, which is necessary for the objective of restoring the viability of Ukraine’s debt,” a Commission representative told Euractiv. “We are confident that the parties involved are committed to finding a satisfactory and smooth restructuring agreement before the end of the debt service suspension with international bondholders,” the representative added. It is recalled the failure of the bondholders and Ukrainian officials to reach an agreement to restructure Kiev’s foreign debt of $20 billion, despite the long negotiations last month. Kiev, whose deficit and debt levels have been launched since the start of the Russian military attack in February 2022, demanded a 60% haircut. Confessors, including several American and European investment giants, such as BlackRock, PIMCO, Fidelity and Amundi, proposed a 22% cut. Noteworthy, a $15.6 billion loan agreed with the International Monetary Fund (IMF) last March partly depends on the successful restructuring of a significant part of Ukraine’s external debt. Meanwhile, US and EU aid to Kiev is unlikely to address the country’s forthcoming fiscal crisis. A $60 billion aid package approved by the U.S. Congress in April is reserved exclusively for military purposes, while a technically complex $50 billion loan agreed by G7 leaders last month is expected to arrive months after the August deadline. In addition, Ukraine will face new adversities ahead of March 2027, the expiry date of the debt suspension agreed by the governments lending Ukraine to markets – Canada, France, Germany, Japan, the United Kingdom and the USA. “When debt service suspension expires, if there is no agreement on a new suspension or full debt restructuring, then Ukraine is likely to go bankrupt,” Tim Jones, the policy chief of Debt Justice, a UK-based non-profit organization, told Euractiv. Jones condemned private bondholders’ refusal to accept a more substantial debt reduction. “Ukraine cannot and should not fully pay private creditors while facing the invasion from Russia,” he said, adding that “the only reason private creditors are not willing to accept greater impairment is that they are pushing for greater profit for themselves.” Jones stated that the current attitude of the bondholders amounts to the requirement that public organisations and governments – and taxpayers – serve their loans instead. “By refusing to accept an impairment, bondholders are trying to achieve the public money promised to Ukraine by the IMF, the EU and others to be spent on repaying private lenders, instead of rebuilding Ukraine,” he said. Maxim Samoylik, an economist at the Centre for Economic Strategy, a Kiev-based think tank, repeated his observations. “Since Ukraine uses all its own budget revenue to finance defence, the main source of repayment of private debts could be financial assistance from foreign countries, i.e. their taxpayers’ money,” he told Euractiv. “In this light, the interest of governments in the success of Ukraine’s negotiating position seems reasonable”. Are private creditors open to further negotiations? Overall, however, Samoyluk believed that the “most likely and optimal” scenario is to reach a debt restructuring agreement. “Our opinion is that the position of private creditors is only their initial offer and should eventually negotiate an impairment acceptable on both sides.” Samoyluk also explained that a Kiev bankruptcy would have minimal, if not at all, direct effects on the EU economy – or even Ukraine – given that the amounts negotiated represent less than a fifth of Ukraine’s total external debt. He also noted that the consequences of a bankruptcy will only become apparent when the war is over. “In a calmer, more peaceful environment, avoiding a bankruptcy is important for maintaining the country’s access to external capital markets,” Samoylik explained, while “Ukraine lost this access weeks before full-scale invasion began”. “However, despite the absence of practical short-term consequences of a Ukrainian bankruptcy, it should be avoided to improve the conditions for Ukraine’s return to external lending when the security situation permits”.