As Bloomberg explains, Ukraine is trying to reduce debt payments in wartime, but Kyiv needs to maintain good relations with creditors to restore the economy after the war.
The Ukrainian government insisted on reducing the debt to 60 cents on every dollar, while bondholders were willing to lose only 22.5%. Ukraine also sought to defer its payment obligations by offering to exchange outstanding bonds for new debt maturing in 2040 with interest payments of 1% for the first 18 months, then gradually increasing to 6%. The government also offered investors a so-called government contingency instrument, payments under which can only start after 2027.
The parties must restructure the debt or extend the moratorium to avoid a sovereign default. JPMorgan analysts suggested that the moratorium extension is possible for several months. The current moratorium will end on August 1. Ukraine can declare a default if it does not pay after a 10-day grace period. The Ministry of Finance is convinced that the parties will find a solution.