As bombing and shelling ripped through Ukraine’s towns and cities in the first week of the invasion, the Ukrainian government still made a scheduled interest payment to its private lenders on time. The lenders—mostly international finance institutions, banks, and hedge funds—are all queuing up to collect their debts, with no sign of respite.
The people of Ukraine are fighting for their survival while dealing with huge humanitarian needs, mass displacement, and the horrific siege conditions in Mariupol. And yet they are seeing urgently needed resources flow out of the country to foreign creditors.
Ukraine’s total external government debt amounts to $54 billion. The country is set to pay $7.3 billion in debt repayments this year alone. More than half is due to private lenders like banks and hedge funds, while most of the rest is owed to multilateral institutions such as the IMF, the World Bank, and the European Investment Bank. The current fall in the value of Ukrainian hryvnia against the US dollar will only exacerbate the debt burden, as foreign debts are owed in dollars, heaping extra pressure on the government to find the funds to repay its loans at a time of foreign invasion and extreme economic disruption.
Since the invasion, Ukrainian dollar-denominated bonds, which were issued as part of its 2015 debt restructuring, have been trading at around 25 cents in the dollar. This reflects the high risk of default, but also means that if Ukraine continues to make its debt payments, Western banks and hedge funds could make profits of 300%.
The response of multilateral institutions has been to give even more loans to Ukraine. Since the war started, the International Monetary Fund (IMF) has given a £1.4 billion emergency loan, while the World Bank has provided a $723 million financial package that includes $589 million in loans. These new loans are being piled on top of Ukraine’s already unsustainable debts.
Ukraine should never have been required to take on these debts in the first place. Following the Russian annexation of Crimea and military conflict in Donbas in 2014, Ukraine faced economic and financial crisis and was forced to take on more foreign loans from international institutions. IMF loans came with strings attached, which push Ukraine to accept punishing conditions involving public spending cuts, privatisation, and market liberalisation. This prescription of failed policies is familiar to many lower-income countries across the Global South, where the IMF has imposed similar conditions on loans for decades, unleashing long-lasting damage on their economies.
Civil society groups are demanding a response to Ukraine’s debt crisis commensurate with the scale of devastation being unleashed, which includes debt cancellation to release finances for humanitarian aid and medical supplies as well as for future reconstruction. They warn about the role that IMF loans have played in restructuring their economy and slashing essential public services. This agenda is damaging at the best of times, let alone during military conflict and instability.
Calling for debt cancellation in response to invasion, disaster, or crisis should not be controversial—it should be an automatic global response. The global debt justice movement is calling for an automatic debt relief process to ensure that unrelenting debt repayments do not prevent governments from responding to humanitarian catastrophes and severe external shocks.
Multilateral institutions and governments should sign up to a global scheme to automatically suspend debt payments at times of invasion, pandemics, and natural and climate disasters. Following debt suspension, an independent assessment should be conducted to identify the level of debt restructuring and cancellation required by all creditors. Instead of fighting for debt suspension and cancellation on a disaster-by-disaster basis, an automatic debt relief mechanism would be the quickest way to provide immediate support.
Financial support to Ukraine should include both debt relief and grants, so that Ukraine is not left servicing its current debt while taking on even more loans with more damaging conditions. The UK government should use its influence to push the IMF and World Bank to cancel Ukraine’s debt to free up funds for immediate relief and for future reconstruction.
As the people of Ukraine fight for their survival as a country, cancelling debt is a crucial act of solidarity—and one that can and should be done immediately.
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