Ukraine Debt Talks Collapse, Country Faces May Default

Ukraine failed on Thursday to reach a deal on restructuring more than $2.6 billion in debt securities, raising the likelihood of a default next month.

Talks between investors holding the debt and Ukraine’s Finance Ministry ended without an agreement, as Kiev rejected the creditors’ proposal concerning payments due at the end of May. As a result, Ukraine must now pay $540 million to creditors or risk falling into default.

The debt in question is linked to Ukraine’s gross domestic product (GDP) and was structured to become due if the country’s GDP growth exceeded 3%. With Ukraine reporting a 5.3% GDP growth rate for 2023, the repayment obligation was triggered.

In 2023, Ukraine secured a $15.3 billion loan from the International Monetary Fund (IMF) and restructured roughly $20.5 billion in debt to private creditors and international bondholders in September of the same year.

Investors involved in the current negotiations, consisting of hedge funds and other Investment firms, say they have already made concessions to Kiev and described Ukraine’s counterproposal as unrealistic.

After three years of war that have devastated the country’s economy, questions persist about how much of Ukraine’s financial system is sustained by foreign aid. U.S. funding, in particular, has reportedly been used to cover a range of domestic expenses—from government salaries and agricultural inputs such as seeds and fertilizers, to subsidies for small businesses.

Amid these financial pressures, the United States is reportedly in talks to finalize a “minerals deal” with Ukraine that would grant the U.S. extensive access to Ukraine’s natural resources—resources that contribute significantly to its nominal GDP. The deal raises broader concerns about how much of Ukraine’s economic activity is genuinely independent from foreign support.

While non-military U.S. assistance continues to flow to Kiev, the funds are drawn from appropriations approved under the Biden administration, which are expected to run out later this year.