Ukraine will default on a $665 million payment to bondholders due on Monday, according to the country’s Finance Ministry.
The payment stems from more than $3.2 billion in GDP-linked warrants issued by Ukraine, under which the size of repayments is tied to the country's economic growth.
Finance Minister Serhii Marchenko described the warrants as being “designed for a world that no longer exists.”
Ukraine first issued the $3.2 billion in GDP-linked warrants in 2015 as part of a broader debt restructuring effort. The agreement required payments only if the economy grew by more than 3% annually and nominal GDP surpassed $125.4 billion, with payouts capped at 0.5% of GDP.
In 2023, Ukraine reported 5.4% GDP growth and a nominal GDP of over $179 billion—triggering the scheduled June 2nd payment.
Negotiations between the Ukrainian government and bondholders to restructure the terms broke down in April, with creditors asserting they had already made significant concessions to Kiev.
Ukraine’s GDP shrank by 30% in 2022 following the onset of Russia’s full-scale invasion, but the sharp rebound reported in 2023 is viewed by some analysts as potentially anomalous.
Ukraine's economy is heavily propped up by Western financial assistance. Much of the funding that supports government operations, including salaries and business subsidies, comes from Western-backed NGOs and direct state funding. Meanwhile, Ukraine reportedly allocates 100% of its national budget to military expenditures.
As a result, Ukraine’s ability to generate revenue to meet debt obligations is limited. The situation is further strained by growing concern in Kiev over a potential reduction—or even total cutoff—of U.S. aid.
While Ukraine has successfully restructured more than $20 billion in international bonds—securing a deal last July that allowed it to avoid default due to wartime conditions—the failure to meet Monday’s payment could damage investor confidence. This comes at a time when Ukraine is in urgent need of financial support for future post-war reconstruction.