Ukraine Temporarily Defaults Amid War-Driven Debt Restructuring

Ukraine has invoked a law to skip international debt payments, initiating a short-lived default as it finalizes a $20 billion debt restructuring plan. The country’s ongoing war with Russia necessitates significant economic measures. An anticipated restructuring plan aims to cut Ukraine's international bond value by 37%, equating to $11.4 billion in savings over three years.

Ukraine has invoked a law to skip international debt payments, marking a short-lived default, as it finalizes a restructuring plan for its $20 billion international debt. The government resolution passed on Wednesday allows Ukraine to "temporarily suspend" payments starting August 1.

This decision means Ukraine will not pay a $34 million coupon for a Eurobond maturing in 2026, due on August 1. Although a 10-day grace period follows, the government has expressed intentions to withhold payment. Despite officially marking another default for Ukraine, debt markets are unlikely to be concerned.

The full-scale war with Russia, now in its 29th month, continues to drain Ukraine's resources and economy, making it heavily dependent on international financial and military aid. On July 22, finance officials announced a provisionally agreed restructuring deal, which bondholders are expected to formally approve soon.

The proposal includes a 37% nominal haircut on Ukraine's outstanding international bonds, aiming to save $11.4 billion over the next three years—the duration of its IMF program. Despite this, Ukraine's finances will remain strained.

It's the second instance in a decade that a Russian invasion has forced Ukraine into debt restructuring, the previous being in 2015 following the annexation of Crimea. Like then, this default is expected to be short-lived with minimal long-term impact.

(With inputs from agencies.)