Thoughts on Ukraine Debt Relief: Challenges and Opportunities

by Institute for Economic Research and Policy Consulting, DiXi Group, Center for Economic Strategy, Institute of Analytics and Advocacy (RRR4U Consortium)

The full-scale war of russia against Ukraine resulted in large financial needs. The debt is estimated to exceed 100% of GDP already in 2025. Therefore, high debt burden creates debt sustainability risks and requires discussion of debt treatment.

In 2024 Ukraine negotiated an extension of the standstill-2022 on the official external debt and services fully the domestic debt and the debt to the IFIs. At the same time, the government is currently negotiating with Eurobond holders on the restructuring of approximately USD 20 billion in private debt as the two-year standstill agreement, reached at the beginning of the full-scale war, approaches its end in August 1, 2024. The positions of the government and the creditors differ significantly regarding the terms and conditions of new notes. The situation is tense, and the negotiations are challenging for both sides.

In this paper, RRR4U Consortium examines the broader context of Ukrainian debt and explore potential future policies that could benefit Ukraine, focusing on possible debt relief mechanisms in relation to domestic and external debt. One of the options for consideration could be using debt-for-nature/climate swaps with official lenders as auxiliary tool for public debt management. This would reduce Ukraine’s debt burden and, at the same time, create a fiscal space for green recovery and development.