Ukraine has not agreed with investors to revise the terms of payments on GDP warrants worth $2.6 billion. This creates a risk that Kyiv will not be able to pay almost $600 million in payments for economic growth in 2023 at the end of May.
This was reported by the Ministry of Finance of Ukraine.
The agency will “consider all available options” and continue the talks after their unsuccessful start in Washington this week. The International Monetary Fund has warned that if the warrants are not resolved, they pose a serious risk to the sustainability of Ukraine’s current $15.5 billion aid program and the restructuring of more than $20 billion in debt carried out last year.
Last year, GDP warrants were excluded from the debt restructuring due to their complexity, but Kyiv pledged to conclude agreements with investors to avoid paying them billions of dollars in future years.
The payouts on these warrants are tied to Ukraineʼs annual economic growth, which could accelerate significantly if the war ends.
Kyiv will have to decide whether to default on a nearly $600 million payment due at the end of May. If a restructuring is not agreed on in time, Ukraine may not meet this obligation.
GDP warrants were issued in 2015, during a previous restructuring of Ukraineʼs debt, to motivate creditors to support the country. At that time, investors were promised a share of the profits if the economy grew.
But since the start of the full-scale war, the warrants have become controversial, as Kyiv and its Western partners do not want the money from the economic recovery to go to private investors. The warrants provide for payments if annual growth in Ukraine’s GDP exceeds 3%. Ukraine believes these conditions are outdated, given the extensive destruction caused by the war.
“GDP warrants were designed for a world that no longer exists. Ukraine’s modest economic growth in 2023 was not a sign of rapid prosperity, but a fragile rebound after a nearly 30% decline caused by Russia’s full-scale invasion,” stressed Ukrainian Finance Minister Serhiy Marchenko.
- In August 2022, Eurobond holders agreed to a two-year deferral of payments and maturities. Ukraine reached this agreement for almost 75% of the total principal amount of the outstanding securities. Most of Ukraineʼs creditors suspended payment obligations until 2027.
- In October 2023, Reuters reported that Ukraine was discussing plans with foreign bondholders to restructure $20 billion of debt and the possibility of raising new financing.
- In May 2024, The Wall Street Journal wrote that Ukraineʼs foreign creditors want to resume payments on the state debt as early as 2025.
- On July 22, Ukraine reached an agreement with Eurobond holders to restructure its external debt, saving over $30 billion. Subsequently, Fitch Ratings downgraded Ukraineʼs credit rating to pre-default.
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