DEFAULT AS IT IS: FROM ILLUSION TO REALITY

While the Ukrainian authorities continue to speak of “macroeconomic stability” and “high reserves,” the country is in fact entering a phase of silent default — quietly, without formal announcement, but with all the characteristic symptoms: growing debt burden, disregard for debt terms, and the absence of a plan B.

$665 Million as an Alarm Signal

On May 30, 2025, Ukraine officially announced for the first time that it would not pay $665 million on GDP-linked warrants issued during the 2015 debt restructuring. These instruments, tied to GDP growth rates, were intended as indicators of trust in economic recovery. Instead, they have become the first clear signal of a deliberate refusal to service part of the external obligations.

This event did not trigger a cross-default — such a clause was excluded back in 2022. However, the fact of non-payment on a sovereign instrument is considered a technical default.

Source: Bloomberg, 30.05.2025

IMF Mission and Coordinated Risk

Three days earlier, an IMF mission was working in Kyiv. In the staff-level concluding statement, it was noted:

“Staff and the authorities also discussed the authorities’ plans to continue engaging with holders of GDP warrants, building on the May 2024 staff-level agreement, and their intention to make efforts to reach an agreement with creditors.”

This confirms that the GDP warrants issue was on the agenda during consultations with the IMF.

How Much Ukraine Owes, and to Whom:

As of now, Ukraine’s public debt structure is as follows:

• Total public debt: ₴7.48 trillion (≈ $180 billion)

• External debt: ₴5.21 trillion (≈ $126 billion), including:

• $20.4 billion — IMF

• $15.6 billion — World Bank

• $7.2 billion — EU

• ~$21 billion — Eurobonds and private creditors

• Domestic debt: ₴2.27 trillion

Source: Forbes Ukraine, 30.05.2025

Under the 8th review of the EFF program, Ukraine was eligible for up to $900 million. However, it agreed to receive only $500 million. This indicates available liquidity — meaning the default was not due to a lack of funds. It was a strategic decision not to pay.

This step is particularly telling amid the growing debt load. The debt-to-GDP ratio had already reached 92% by early 2025 (compared to 84% in 2023 and 49% in 2021).

Forecasts from the IMF and Trading Economics indicate that the 100% threshold may have been breached already in the first half of 2025, with an expected range of 106–110% by the end of the year.

Reserves Exist — But They’re Not Ours

As of May 1, 2025, Ukraine’s international reserves stood at $46.7 billion. At first glance, this seems like a solid financial cushion. However, these reserves were primarily formed through borrowing, not from export or tax surpluses. In essence, they are simply postponed obligations.

If we analyze the IMF’s forecast for this year, it becomes evident that the macroeconomy is “not coping”:

• GDP growth: 2.0%

  
  

  — An indicator of stagnation. Growth drivers (exports, investments, consumption) are essentially absent. This rate is insufficient to reduce debt or create a basis for fiscal stability.

• Inflation: 12.6%

  
  

  — For the population, this means a significant loss of purchasing power. For investors, it’s a red flag about long-term risk.

• Budget deficit: Over 20% of GDP

  
  

  — A sign of deep dependency on external financing.

• Current account: Consistently negative

On global markets, this forecast is interpreted unambiguously: Ukraine’s risk is extremely high. This is confirmed by CDS rates exceeding 3,000 bps and Eurobond yields above 27%. These are clear indicators of distrust — even if domestic authorities manage to maintain an illusion of stability.

Restructuring Is Inevitable

When it comes to Ukraine’s debt prospects, three baseline scenarios are possible:

1. Extension of the debt moratorium— The moratorium has been in place for nearly three years. From a realistic perspective, the likelihood of further extension is minimal.

2. Formal restructuring similar to 2015— A repeat of such restructuring is also unlikely. The war continues, increasing uncertainty. The current debt volume is significantly larger. Moreover, the conscious default on GDP warrants may provoke a tougher stance from creditors.

3. Comprehensive debt overhaul— This appears to be the most realistic option.

One would hope that Ukrainian authorities have a clear “plan B” to exit the debt crisis. However, projections suggest the problem will only deepen.

A Financier’s Conclusion:

Default has already occurred — both legally and factually — but at the political level, this fact is being ignored.

For the first time since the start of the war, the state has deliberately stopped servicing specific obligations — without exiting IMF programs and without formally declaring default.

This is a silent, coordinated default of a new type.

It also confirms that key financial decisions in Ukraine are no longer made by professionals with crisis management expertise, but by politically loyal appointees — puppets installed by the Presidential Office in top financial institutions. Their main qualification is convenience, not strategic vision or accountability to the