Country focus Ukraine: Debt cancellation for a fresh start after the war

Ukraine had long been a heavily indebted country. Then came Russia’s attack in February 2022. This was an external shock on the largest possible scale that not only brought immense suffering to the people. The Ukrainian economy was also hit hard, key infrastructure was destroyed and the livelihoods of many people in Ukraine were wiped out.

According to the International Monetary Fund (IMF), Ukraine will lack almost 90 billion US dollars between 2024 and the first half of 2027 to defend itself during the war and maintain the functioning of the Ukrainian state. Ukraine is therefore dependent on support from abroad. Some of the foreign support comes in the form of loans. This is mainly support from official creditors, i.e. friendly countries. A larger proportion also comes from multilateral creditors, such as the European Commission or the IMF. Within a year of the start of the war, public foreign debt increased by almost 40 per cent as a result of this borrowing.

It is already clear that the state’s economic and fiscal situation will be unsustainable even after the end of the war. The reconstruction costs over the next ten years are estimated by the World Bank to be at least 490 billion US dollars.

A self-determined Ukraine after the war needs debt cancellation

Regardless of the outcome of the war and the timing of its end, two predictions can currently be made for the debt situation in the post-war period:

  1. In view of the massive destruction, Ukraine will not be in a position to resume its debt service properly and in full. There will be no return to ‘normal’ debtor-creditor relations. Ukraine will neither be able to honour its pre-war payment obligations nor repay the new loans granted during the war.
  2. The international community’s current procedures for resolving debt crises are not sufficient for an appropriate debt settlement for Ukraine. This applies in particular to the sharp rise in debt owed to multilateral creditors, as these enjoy de facto exempt creditor status and therefore grant little or no debt relief.

Self-determined reconstruction and the economic recovery of an independent Ukrainian state after the end of the war will depend crucially on whether the national debt can be reduced to a sustainable level and whether the necessary room for manoeuvre for recovery and reconstruction is taken into account. However, the current debt restructuring procedures cannot guarantee this. The case of Ukraine therefore requires a rethink within the international debt architecture.

The question of how to deal with debt is already central during the war

However, the issue of debt cancellation does not only play a major role after the war, but already now. For as long as the war continues and in view of the high financing deficit, high debt service payments can severely hamper the country’s ability to act.

Shortly after Russia’s attack, some creditors (including private investors and some of the bilateral public creditors, including in the Paris Club) granted Ukraine a debt moratorium on its pre-war claims. This allowed Ukraine to suspend payments to some of its creditors for the time being. The public bilateral creditors quickly decided to extend their moratorium until 2027 and at the same time undertook to restructure their claims on Ukraine thereafter. However, the moratorium of the private pre-war creditors expires in September 2024. Unlike the public bilateral creditors, the private investors have not extended their moratorium for the time being. Without an arrangement, Ukraine will have to make high debt service payments as early as 2024 – money that it does not have. The IMF is also demanding that Ukraine negotiate a comprehensive debt restructuring not only with the public bilateral creditors, but also with the private investors. However, discussions to date show that private investors are not prepared to make major concessions – but are betting that they will only have to concede minor debt cuts.

Private investors are acting in a very similar way to those in other over-indebted countries: they are trying to minimise their losses at the expense of the debtor country’s debt sustainability. This is despite the fact that they have granted their loans at high interest rates – and have therefore already been compensated for the risk of default. They also insist on being additionally compensated for possible (minor) debt cancellations on their part: Special agreements (a so-called ‘value recovery instrument’) are intended to ensure that private investors benefit from a future economic upswing in the country in the context of reconstruction – even though they are not contributing to this at all.

Those who end up paying for this are the citizens of Ukraine. They are the victims of an inefficient system that fails to involve creditors in debt cancellation in a sufficiently binding and comprehensive manner.


In the debates that are already taking place about the reconstruction of Ukraine, the question of how to deal with the debt crisis has so far only been mentioned in passing – although the debt situation will massively hinder the reconstruction of the country. would like to work within the framework of the country focus and in cooperation with international partners to ensure that the need to deal with this issue is recognised and that the topic of debt relief is included in the political debate. Far-reaching and extraordinary debt relief will ultimately be the decisive prerequisite for the country’s economic recovery.

Key points from the perspective of

  • As long as the war continues, ongoing debt service payments should be automatically suspended. This applies to all creditor groups, including multilateral creditors, especially in the case of negative net transfers during the war.
  • After the war, a comprehensive settlement of foreign debt must be found, which must include substantial debt cancellations. This can be done, for example, within the framework of a debt conference that includes all creditors and all claims. This must aim to find a solution that includes debt sustainability, taking into account the necessary investments for reconstruction – for example, by taking a low post-war debt service as a basis.
  • At the same time, regulatory or legal steps should be taken at both international and national level to prevent (private) creditors from recovering their claims in national courts.

Ultimately, it is also important that the considerations and decisions made specifically about Ukraine should also have an impact on global structural reforms and the handling of other country cases. This is because innovative and progressive reforms in the resolution of debt crises have been rare to date. Debt restructuring processes, whether coordinated frameworks or individual negotiations, are still characterised by overly narrow creditor interests. A fair, sustainable solution to the debt situation in post-war Ukraine that is tailored to the needs of the population could therefore also send a positive signal to other countries.