KIEV: Ukraine said it would begin negotiations with creditors on restructuring the conflict-torn country’s debt, a move called for in its high-stakes multibillion-dollar bailout from the International Monetary Fund.
Finance Minister Natalie Jaresko said she expected the first US$5 billion tranche of the new US$17.5 billion IMF loan by Friday, with another US$5 billion later in the year.
The IMF said that major risks remained in Ukraine’s economic recovery, the main one being the resumption of fighting in the east, where a ceasefire between government forces and pro-Russia rebels is largely holding but skating on ‘thin ice’, according to monitors.
“The programme faces exceptionally high risks,” the IMF said in its analysis. “Creditors may balk at the terms being offered.”
Speaking at a briefing in Kiev, Jaresko said Ukraine would start consultations with creditors on Friday with the goal of ‘easing pressure’ on the budget and saving US$15 billion over the next four years.
“We will listen to their point of view over several weeks,” she said. “We have to find solutions… I hope we find a solution within two months,” to meet the June deadline set by the IMF.
Ukraine is bracing for a 5.5-per cent contraction of its economy this year and is also battling to keep its currency afloat.
The hryvnia lost over two-thirds in value over the past year.
The IMF estimates that Ukraine’s debt-to-GDP ratio will hit 94 per cent this year but then decline to 71 per cent by 2020.
Jaresko did not specify on which debt she wanted to renegotiate terms, but analysts said the move would likely target bondholders.
“As far as I understand the finance ministry will enter negotiations with private creditors,” Oleksandr Valchyshen, chief economist at Investment Capital Ukraine, told AFP.
The IMF lifeline, part of an international rescue package expected to reach US$40 billion, aims to support “deep and wide-ranging policy reforms,” according to the fund’s managing director Christine Lagarde.
Ukraine’s debt is made up mainly of US$17 billion in bonds, with up to US$8 billion reportedly owned by Franklin Templeton, a US investment firm.
Russia – which Kiev and the West accuse of fuelling the insurgency in the east, accusations Moscow denies – holds US$3 billion in Ukrainian bonds.
The two-year loan was agreed by former president Viktor Yanukovych in January 2013 and Moscow has warned that it could demand early payment because of its own financial woes.
Asked about the Russian money, Jaresko said that Kiev “does not distinguish between nationalities” of its creditors and would launch consultations with everyone.
“It remains to be seen whether Russia would agree (to a restructuring),” Valchyshen said. “Probably they would try to block it.”
Ukraine is mired in a deep economic crisis, which has been exacerbated by the war in the east, bordering Russia.
Gross domestic product fell 7.0 per cent last year.
The IMF’s assistant director in the European department Thanos Arvanitis said the fund was “heartened that the ceasefire agreement of February 12 is holding.”
The deputy chief of the OSCE’s mission in Ukraine Alexander Hug said Thursday that violence has fallen off significantly along the nearly 500-kilometre frontline in the eastern Donetsk and Lugansk region, but that “relative stability is at the moment on thin ice.”
The Organisation for Security and Co-operation in Europe decided on Thursday to double the size of its mission in Ukraine to 1,000 people in order to better monitor the implementation of the ceasefire on the ground. — AFP