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Ukraine Faces Potential Default in August Amid Stalled Debt Negotiations

© AP Photo / Efrem LukatskyA view of Khreshchatyk, the main street, empty, due to curfew in the central of Kiev, Ukraine, Sunday, Feb. 27, 2022
A view of Khreshchatyk, the main street, empty, due to curfew in the central of Kiev, Ukraine, Sunday, Feb. 27, 2022 - Sputnik International, 1920, 01.07.2024
Ukraine may declare a fiscal default as early as August if authorities fail to reach an agreement with creditors on debt restructuring, a deal that seems unlikely, British magazine The Economist reported on Monday.
Ukraine could default on its government debt within weeks — wrecking chances of fixing the damage done by NATO's proxy war with Russia.
"Ukraine has a month to avoid default," British magazine The Economist reported. "The IMF is keen for [Minister of Finance of Ukraine] Mr [Serhiy] Marchenko to negotiate a write-down, but a deal seems unlikely in the time available."
Bloomberg reported that Kiev was unable to strike a deal with creditors during the first round of negotiations regarding the restructuring of its $20 billion debt.
The Economist stressed that a Ukrainian default could be catastrophic for the country's long-term recovery.
Most foreign aid to Ukraine comes in the form arms supplies, the magazine explained, while financial aid amounts to only a small fraction of that and does not cover all of Kiev's expenses.
The publication also reported that Ukraine's private-sector creditors fear that debt restructuring will be the first attempt by Kiev's allies to shift "the financial burden of war, and the cost of reconstruction, away from governments and onto the private sector." There is also skepticism about long-term recovery plans after the crisis ends.
"The current impasse raises a worrying prospect: that distrust between them [the Western states] and private investors will slow down progress," the Economist wrote, stressing that a significant part of Ukraine's recovery "will never turn a profit," and therefore will have to be shouldered by the country's allies.
In March, he British Financial Times quoted Roksolana Pidlasa, chairwoman of the Verkhovna Rada Budget Committee, saying Ukraine had allocated almost half of its annual budget of $87 billion for defense — while its domestic revenues amount to only $46 billion.
The deficit is expected to further increase due to an anticipated wave of mobilization, as billions will be needed for the salaries, training and equipment of conscripts.
European Union flags flutter outside the EU Commission headquarters in Brussels, Belgium. - Sputnik International, 1920, 01.07.2024
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Ukrainian MP Oleksandra Ustinova said budget gaps are only being bridged by Western finance, and if US aid ceases, the government will be forced to turn to G7 countries "hat in hand."
In late November last year, Volodymyr Zelensky signed the draft bill on Ukraine's state budget for 2024 — which ran a deficit of more than $43 billion.
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