While Washington debates global financial stability next week during the IMF and World Bank Spring meetings, the failure of the previous Ukraine debt strategy is becoming apparent in the shadow of the new IMF Ukraine program.
The IMF’s Resignation: One Billion Dollars a Year for Pre-War Investors
In February 2026, the IMF prematurely replaced its existing loan program and extended it until 2029. One of the reasons was that the public bilateral creditors (the Group of Creditors, GCU) were actually supposed to restructure debt by the end of the previous program, but saw no basis for doing so due to the ongoing war. With the new program, the GCU also seems to be extending its debt moratorium for Ukraine, as it is mentioned in the IMF report. China has followed suit, granting Ukraine a debt moratorium until 2029 as well.
This also means that a bet by public lenders regarding the restructuring of pre-war bonds from 2024 has collapsed. The haircut granted by private bondholders at the time, which was far too small, was accepted as a kind of “standstill light”: since investors couldn’t be forced into the hoped-for deeper haircut, the aim was to buy a little more time to then persuade private lenders to a second, more substantial debt restructuring. This was to happen if Ukraine’s public bilateral lenders granted significant debt relief and then, based on their principle of equal treatment, determined that private lenders would have to contribute again to catch up. It had previously been assumed that this would be by spring 2027 at the latest. However, the extension of the moratorium now also postpones the timing of the public bilateral lenders’ debt restructuring. This, in turn, necessarily delays the review of whether the various relief measures are comparable and thus also the basis for demanding further concessions from private lenders.
From “standstill light” to billions in outflows: Taxpayers step in
This, however, no longer constitutes a “standstill light.” Rather, it now means that Ukraine, unlike before, faces a massive outflow of debt service payments. By mid-2029, it must make interest and principal payments totaling $4.4 billion on the restructured bonds. Instead of critically discussing this, the outflow of these debt services has simply been officially enshrined in the program and deemed compatible with debt sustainability. For it states that up to 1 billion US dollars per year may be spent on debt servicing (in addition to multilateral debt service). Previously, it was categorically ruled out that any significant debt service outflows could occur during the war. Logically, with a financing gap of more than $130 billion, this money simply isn’t available. Since Ukraine cannot raise these funds on its own, Western taxpayers are now effectively financing these debt services through the debt moratorium and the massive EU bailout loans. This could also have the potential to create diplomatic tension with China, which is waiving its payments while investors are being paid out.
The Clause Trap
The assessment of the terms in the restructured bond agreements of private creditors in the IMF program is particularly curious. The IMF program praises the fact that modern majority voting agreements (CACs) would “facilitate” future restructuring, and that provisions for a second restructuring have already been made in the restructured bond agreements. But that’s only half the story. In practice, the agreements prove to be more of a sham in these respects:
- While modern CACs are included in the restructured bond agreements, the private creditors have simultaneously included separate clauses for the event of a second restructuring, triggered by the comparability of treatment principle of the public bilateral creditors. These clauses can massively increase the amount of claims and thus make a fair restructuring considerably more difficult.
- Furthermore, former warrant holders have made provisions that, if included in such modern voting procedures, would further and significantly increase their share of the total claims involved. This could allow a small group of creditors to block a joint solution.
Questions for Washington
Instead of simply ignoring all of this, the IMF should ensure, in its debt sustainability analysis, that the potential impact of the terms in the restructured bond agreements is analyzed transparently and critically. It should also critically examine now how equal treatment can be guaranteed in a future restructuring, given that it was also impossible to bring private creditors to needed haircuts in 2024 and 2025.