The re-elected U.S. President Donald Trump views the war in Ukraine differently from his predecessor. He does not care about the support of a country that has been unlawfully invaded, just as he is does not care about the defense of a parliamentary democracy against an autocrat. Whether it is war or peace, he is solely interested in business opportunities for the U.S. and his billionaire friends. This shifts the focus back to Ukraine’s economic viability and, specifically, how to handle the sovereign external debt accumulated before and during the war.
Current debt situation
Ukraine receives financial support from both Western and non-Western countries in its defense against Russian aggression, part of it in the form of loans. Unfortunately, it is a common phenomen in international debt management that different firgures regarding external debt levels circulate. Ukraine is no exception. Taking the figures of the Ukrainian government: by the end of 2024, the country owed approximately $115 billion to external creditors. About $15 billion of the $115 billion was held by bondholders who had purchased high-interest Ukrainian government bonds before the war and had negotiated a debt restructuring deal with Ukraine in 2024. Private banks accounted for another $1.5 billion in debt.
Western governments have loaned Ukraine more than $7 billion, with Canada alone providing over $5 billion last year. The latest $18.3 billion loan commitment from the Biden administration is not yet included in the figures above. The largest share of Ukraine’s external debt, approximately $86 billion, is owed to multilateral creditors, including $41.6 billion to EU institutions (according to the Ukraine Support Tracker of the Kiel Institute for the World Economy), with the rest owed to various multilateral donors such as the World Bank and the International Monetary Fund (IMF).
With an estimated GDP of around $180 billion, these figures put Ukraine’s external debt-to-GDP ratio at approximately 60% by the end of 2024. Adding the latest U.S. loan commitment raises this figure to around 70%. By IMF debt sustainability standards, this is not yet alarming; some highly indebted countries in the Global South and some nations in the Global North have higher external debt ratios. However, Ukraine faces two unique challenges: (1) its continued GDP growth despite the war is primarily dependent on a steady influx of foreign funds, and (2) the massive reconstruction costs it will need after the war. If a potential ceasefire does not eliminate the risk of renewed Russian aggression, uncertainties for potential lenders and investors will remain high, meaning that reconstruction funds will have to come almost exclusively from public (external) sources.
How to handle this situation? U.S. President Trump recently put forward his own unique ideas.
Loans vs. Grants
In a conversation with French President Macron that spread through the media, Trump argued that the U.S. had contributed significantly more than European nations and that European aid was mostly provided as loans rather than grants. This is technically true: by mid-2024, nearly €42 billion of the EU’s €46 billion in financial aid to Ukraine had been provided as loans. By contrast, the $28 billion in financial support from the U.S. until 2024 had been given entirely as grants. However, this distinction has primarily little to do with the Ukraine.
Until Trump’s return to the White House, the USA generally provided support to allied countries in the form of grants. This has been a long-standing tradition in U.S. policy: foreign aid is fundamentally seen as a geostrategic investment to gain influence. Israel and Egypt, for example, have received military and economic aid from the USA exclusively as grants for decades. In return, they are highly dependent on the continued flow of U.S. support. In late 2024, the USA deviated from this tradition for the first time regarding Ukraine: $18.34 billion in financial support was provided in the form of loans—although the repayment is to be financed through profits from frozen Russian assets in Europe.
Such a grant-based practice has not been common among EU institutions (so far). The EU budget would not have been able to finance outflows that do not remain as claims in the books without restricting core tasks. However, Brussels is presumably well aware of Ukraine’s limited medium-term repayment capacity. Therefore, in the second half of 2024, the G7 countries agreed to guarantee or settle payment obligations arising from new commitments using profits from frozen assets of the Russian central bank held in the European banking system. This applies both to the approximately $18 billion already disbursed by the USA and to future funds provided by the European Commission. As Macron rightly pointed out, debt service on these European claims is not expected anytime soon, meaning they do not pose a threat to the repayment of the most recent US loans.
Mineral Deal
Unlike past U.S. policies regarding allied nations, Trump insists that the U.S. must “get something back” in return for its support—not just political loyalty and economic cooperation but tangible assets. He is particularly interested in Ukraine’s strategic minerals, such as rare earth metals, titanium, lithium, and uranium, which are believed to exist in significant quantities in Ukraine. His main goal is to counter China’s dominance in the sector.
However, knowledge about these Ukrainian reserves is still limited, and many of these rare earth deposits lie in Russian-occupied territories in the Donbas.
The exploitation of all resource deposits was to be carried out comprehensively and exclusively by an American-Ukrainian “fund”, according to the draft agreement presented by the U.S. government. Various media outlets described the proposal, submitted on February 7, as economic colonization of Ukraine by the United States.
However, in some parts of Ukraine, the proposal initially met with cautious approval. This was mainly due to two reasons. First, at least one significant deposit is located in the Donbas region, and such an arrangement could provide the U.S. with a strong incentive to push back Russian aggression. Second, Ukraine has so far barely exploited its own deposits, leading some to argue that “half of something is better than all of nothing.”
Nevertheless, both arguments have limited validity. Strategic raw materials will only become more important and valuable in the future. Instead of handing over control, it might be economically wiser for Ukraine to keep these resources in the ground and extract them later on its own terms, particularly with a view toward a self-determined post-war reconstruction. Additionally, given Trump’s close relationship with Russian President Vladimir Putin, it is possible that he could strike a deal with Russia over the Donbas deposits, bypassing Ukraine entirely.
The Ukrainian government was understandably cautious about the draft agreement and would have only considered any kind of deal in exchange for U.S. security guarantees. The reaction of the self-proclaimed “dealmaker” Trump to the failure of a lucrative business opportunity was soon witnessed by the world, when the Ukrainian president was publicly berated at the White House.
However, such a form of “compensation” for previous U.S. support is not entirely off the table. President Zelensky’s recent efforts to rebuild relations following the White House incident could bring this deal back onto the agenda—especially if it promises Ukraine greater security in return.
Reparations
Equally bizarre is another narrative promoted by the White House, which claims that the United States should receive compensation for the aid it has provided since 2022 and that military assistance should therefore be tied to unprecedented conditions. This narrative was picked up by the media as a demand for reparations, similar to those imposed after wars on defeated opponents who have caused damage in the territory of the victorial or neutral states. For example, the plan has been compared to the reparations payments imposed on Germany under the Treaty of Versailles after World War I. (Germany, however, only paid a small portion of these reparations before the Hoover Moratorium of 1932 suspended all payments, which were never resumed.)
Regardless of its economic and political rationale, such a discussion is completely irrelevant to the situation in Ukraine and its relationship with the United States. Trump is calling for “reparations” for assistance that the U.S. provided voluntarily—not out of selfless solidarity, but out of clear and self-interested political motives. The U.S. itself has suffered absolutely no damage that would require “reparation.” Moreover, Ukraine is not a defeated wartime adversary—at least until last week, it remained an undefeated ally.
What’s Next?
As it has become publicly known, a new „peace plan“ for the Ukraine is now also being discussed in Europe. It remains unclear what exactly will be proposed. Hopefully, the urgency for addressing Ukraine’s external debt situation will be taken into account. Given the contradictions among various creditors – not least the huge amount of “unrestructurable” debt by multilateral institutions -, looking at successful, extraordinary debt relief solutions from the past could be an option—such as the successful debt restructuring of Germany at the London Debt Conference in 1952/53.