Ukraine facing no default despite large public debt - financial expert

That’s according to a Ukraine-based financial expert Serhiy Fursa, who spoke on the air of the Ukrinform: Evening Stream show.

According to him, due to the constant need for additional borrowings, public debt will certainly increase – both in absolute numbers and to the volume of national GDP.

“In normal times, I would say this would be a problem. We are accustomed to living with debt of about 50-60%. But there is a war going on that requires enormous resources, and we can’t do anything about it. However, even by the end of next year, the debt will reach only about 100% of GDP. And this is lower than the debt accumulated by a number of countries in Southern Europe,” the expert recalled.

In his opinion, there is no dramatic growth of debt that would make the country consider default. As an example, Fursa cited Sri Lanka, which is now negotiating debt restructuring.

“The IMF program ... complex reforms ... the purpose of that program is to reach a debt at the level of 95% of GDP in 10 years. That is, now, amid war, we have a much better situation than Sri Lanka will have after all the IMF programs laid down decades!” said the financial analyst.

At the same time, he recalled that much of the financial assistance that Ukraine receives from international partners is grant funds so they do not have to be repaid. These include financial assistance from the United States.

As for the loans received from the EU, although they need to be paid back, they will not become a burden for the country. After all, money is given on preferential conditions at a low rate for 30-35 years. In addition, the first 10 years will be written off at the expense of other EU expenditures.

"In fact, when someone says that ‘our children and grandchildren will have to pay our debts’, we have to understand that it’s only interest on the loan that shall be paid from the budget. When it comes to repayment of the loan body, no one never pays from the budget. This money is taken from refinancing, that is, through another borrowing,” Fursa explained.

Thus almost nothing will be paid for debt servicing. This will in no way increase the burden on the state budget in the first post-war years.

“It appears that over the next 10-15 years, these debts will pose no problem. And in 20-30 years, we will have a completely different economy and, in addition, we will become EU members, for which there is already consensus. And this means that we can count on subsidies from the European Union, as it happened (and is happening so far) with our European neighbors. And the debt we have before the EU will ‘disappear’ and we will forget about it," Fursa said.

As reported earlier, the International Monetary Fund suggests an increase in the total public debt of war-torn Ukraine to 88.1% of GDP at the end of this year. The Fund also predicts that the debt will increase to 98.6% next year and reach a peak value of 100.7% in 2025, after which it will begin to gradually decline.