Finance minister promises Ukraine will not default on its sovereign debt

3 February 2022, 10:26 AM

With the threat of further Russian aggression making borrowing on foreign capital markets prohibitively expensive for Ukraine, Kyiv may issue government bonds underwritten by the United States, Ukrainian Finance Minister Serhiy Marchenko said in an interview with Ukrainian news website Economichna Pravda on Feb. 2.

According to the minister, September will be the toughest month in 2022, in terms of servicing Ukraine’s national debt, as Eurobonds worth $1 billion will come to maturity then.

“If we take the entire year, the median monthly payments associated with our debt are around $300 million,” Marchenko said.

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“Payments denominated in UAH are of no concern at all, and when it comes to foreign currency – we have … over $1 billion left on our accounts; so even without any new borrowing, we’re quite comfortable this year.”

Marchenko insisted that Ukraine is “well-equipped to finance a deficit of 3-3.5% of GDP.”

He added that Kyiv expects to receive $2.2 billion from the IMF this year (in two tranches of $700 million and $1.5 billion), as well as macro-financial assistance from the EU.

“The Europeans resuming their Macro-Financial Assistance (MFA) to non-EU partner countries clearly indicates that we are once again in (their) focus,” said the minister.

"We can already see ways to substitute borrowing from international capital markets with subsidized financing from out international partners.”

Marchenko also believes that current foreign investor fears apply mostly to short-term speculators, and not long term investors.

“Those who invested for the short-term, looking to make a quick buck on Ukraine, are now selling (their financial instruments), prompted by the threat (of Russian invasion),” he said.

The finance minister also said Ukraine is currently in negotiations with the United States for loan guarantees.

“So far it has been only discussed, but such an opportunity is open to Ukraine, pending a final decision,” said Marchenko.

“The United States has not used this tool (U.S.-guaranteed loans) since 2016, but (U.S. President) Joe Biden’s administration is much more open to the idea than (former U.S. President Donald J.) Trump’s ever was – Trump’s White House would have rejected it out of hand.”

Marchenko discussed the subject of loan guarantees with U.S. Deputy Treasury Secretary Wally Adeyemo on Jan. 21.

While the minister did not specify the sum of the aid Washington may extend, he said that any loan guarantee would be a powerful signal in itself, showing “all the hot-heads that Ukraine is not facing any catastrophic problems.”

Ukraine will be able to weather 2022 without issuing Eurobonds, provided it receives the expected financial aid from the IMF, the EU, and can engage in some domestic borrowing, the minister believes.

“Canada, for example, is lending us CAD 120 million ($95 million), which will help us; not to mention the World Bank,” Marchenko said.

“To be perfectly clear: we can deal with the problems we’ve been saddled with.”

The looming threat of a renewed Russian offensive in Ukraine has sent Ukrainian hryvnia into a decline and significantly devalued Ukrainian Eurobonds. Additionally, non-resident investors have recently sold off government bonds worth UAH 5.7 billion ($201 million).

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