In 2023, Ukraine must pay off more than 658 billion hryvnias of debt. The figure was calculated as of January 1. During the year, the state debts will only grow, because in the conditions of the war, it is possible to keep the economy afloat only at the expense of significant borrowings, both external and internal.
How much should Ukraine pay
By data According to the Ministry of Finance, Ukraine must repay 658.44 billion hryvnias of the state’s internal and external debt in 2023 according to agreements in force as of January 1. We are talking about government debts, without taking into account the debts of the commercial sector.
Ukraine has to pay 536.06 billion hryvnias to Ukrainian borrowers, mainly banks (and mainly state ones). Of this amount, 332.82 billion hryvnias will go directly to debt repayment. Another 203.24 billion is interest on loans.
In 2023, Ukraine has to pay 122.38 billion hryvnias to external creditors, of which 94.16 billion hryvnias is the amount of the debt, and another 28.22 billion hryvnias is interest.
The peak of public debt payments falls on May — in this month, Ukraine has to pay a total of 102.59 billion hryvnias to external and internal creditors. High payments are also planned for June — 89.93 billion hryvnias, November — 84.09 billion hryvnias, and March — 72.75 billion hryvnias.
In January, the payments are relatively small – 16.04 billion hryvnias, of which 13.19 billion are internal debt, 2.84 billion are debts to external borrowers.
There should be enough funds for the national debt
Oleksandr Parashchii, the head of the analytical department of the investment company Concorde Capital, in an exclusive comment for Novina.LIVE, noted that in the state budget for 2023, 326 billion hryvnias are provided for the servicing of the state debt (interest). And in the plan of the Ministry of Finance, payments in the amount of 231 billion are planned. So, there is more than enough money.
“If the plan of the Ministry of Finance is realistic, then the state will be able to save up to 100 billion hryvnias per year on debt servicing costs compared to the budget plan”– the expert calculates.
As for repayment of the principal amount of the debt, the situation here also looks encouraging. So, in 2022, the state of Ukraine paid off debts of 450 billion hryvnias. So the 427 billion planned for repayment in the current year does not look fantastic.
Where to get money
Debt payments will be financed, as well as the financing of the state budget deficit, at the expense of new borrowings.
“If we are talking about debt repayment, then the goal of the Ministry of Finance is rollover, that is, obtaining new loans in exchange for the return of old ones. If we are talking about the legally planned needs of the budget for 2023 (deficit + debt repayment), then the amount does not look impressive – only 144 billion hryvnias per month against 195 billion per month in June-November 2022. It is planned to spend 35 billion directly on debt repayment hryvnias per month”— explains Oleksandr Parashchyi.
But there remains the question of the defense and security expenditures planned by the law on the budget, which for 2023 are significantly smaller than they were in the second half of 2022.
If expenditures on defense and security in 2023 are the same as in the second half of 2022, they will exceed the plan by 750-800 billion hryvnias. This will be a real problem that will affect all other capacities of the budget, including the ability to service and repay the public debt.
However, Oleksandra Betliy, a leading researcher at the Institute of Economic Research and Political Consulting, assures that Ukraine has somewhere to get money.
In particular, the predictability of international aid for 2023 increased last December.
Thus, the EU finally decided to provide Ukraine with aid in the amount of 18 billion euros, which will be allocated in regular payments.
Also, the consolidated law on the US budget, adopted in December, and the plans of the US administration provide for the allocation of budget aid to Ukraine in the amount of $9.9 billion, or $1.1 billion on average per month in January-September 2023. Another $900 million is provided by World Bank programs.
So, the sources of part of the external financing provided for in the state budget for 2023 in the amount of $38 billion are already clear.
Also in December, the IMF approved a monitoring program with the involvement of the Board of the Fund for Ukraine. If it is successful, a large program with funding can be launched in March 2023.
At the same time, there is a possibility that in 2023 the planned indicators of domestic borrowing will be exceeded. Thus, the law on the state budget provides for domestic borrowing in the amount of only 90 billion hryvnias, while only on January 10, 23.5 billion were raised from the issuance of OVDP bonds. This was facilitated by the fact that from January 11, 2023, banks will be able to cover up to 50% of the total the amount of required reserves at the expense of domestic state loan bonds.
Is restructuring or default possible
According to Oleksandr Parashchyi, the restructuring of state debts simply does not make sense. And default is suicide.
“The restructuring of the domestic debt is a dangerous thing, since the main holders of such debt are Ukrainian banks, and mostly state banks. By reducing the value of domestic debts, the Ministry of Finance can drive the banking sector into a crisis, the exit from which will be too expensive for the government.”– warns the expert.
External debt restructuring is theoretically possible, but it will not have a significant effect: out of 94 billion hryvnias planned for external debt repayments in 2023, only 15 billion are for commercial loans that can be restructured. Others are loans from states and international financial organizations. These structures plan to allocate more funds to Ukraine in 2023 than Ukraine has to repay. So defaulting on obligations to them is suicide.
Debts are growing
In 2023, Ukraine must find additional financing for approximately 2 trillion hryvnias, without taking into account the need for debt refinancing. If 35-40% of this amount is provided in the form of grants, then the state debt will increase by 1.2-1.3 trillion hryvnias in 2023.
An analysis of the structure of the debt that Ukraine took on in 2022 shows that most of the new debts were long-term, with repayment in 5-30 years. Most likely, this trend will remain in 2023, Oleksandr Parashchiy believes. After all, most of the debts that Ukraine plans to receive in 2023 will be in the form of loans from governments and international financial organizations.
Under such conditions, Ukraine’s public debt will reach about 5 trillion hryvnias, or 80% of GDP, by the end of 2023.
Author: Ruslan Kislyak
