Ukraine tapped lion's share of IMF reserve allocation, debt pressures building

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WASHINGTON, March 3 (Reuters) - Ukraine has exchanged all but $80 million of the $2.7 billion in new International Monetary Fund emergency reserves it received in August, IMF data show, and debt experts say it will likely need urgent debt relief this year.

Ukrainian forces are battling Russian troops that invaded the country last week in the biggest attack on a European state since 1945, with thousands reported dead or injured and more than 1 million refugees having fled. read more

Western nations are sending billions of dollars in financial support and weapons to help Ukraine, while imposing sweeping sanctions aimed at pressuring Russia to halt the assault.

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The World Bank's board is poised to approve an initial $350 million in budget support funds on Friday as part of a broader $3 billion package, with the IMF expecting to approve disbursement of a large part of the $2.2 billion left in Ukraine's stand-by arrangement next week. read more

Reuters reported last month that Ukraine was working with the United States and other Western nations to develop a new tool that would allow richer countries to transfer their IMF Special Drawing Rights, or reserve assets, to Kyiv. read more

Further complicating the crisis is Ukraine's heavy debt burden, which totaled $94.7 billion at the end of 2021, including loans from multilateral institutions such as the IMF, and bilateral, private and domestic creditors.

That sum comprises $21.7 billion in multilateral debt, including $13.4 billion held by the IMF; $6.5 billion in bilateral debt with sovereign lenders; $28 billion in debt held by bondholders and commercial creditors and $38 billion owed to domestic lenders, IMF data show.

AVERTING PAYMENTS CRISIS

The U.S. Treasury Department and the IMF could take several steps to ease Ukraine's debt burden and avert a payments crisis, Eric LeCompte, executive director of Jubilee USA Network, told Reuters.

Treasury could seek congressional authorization to freeze the $2 million in service payments Ukraine owes the United States this year on its $790 million bilateral debt, he said.

U.S. President Joe Biden could also issue an executive order deferring debt payments to private creditors located in the United States, he said, citing a similar move made by former President George W. Bush during the Iraq war in 2004-2005.

Doing so, he said, would send a "strong signal of support for Ukraine beyond the really good things that the administration has already been doing".

It would also ensure that private creditors don't "use this moment to try and exploit Ukraine", he said.

Despite the war, Ukraine has stayed current on its debt obligation and has made coupon payments on five of its Eurobonds that had been due on Tuesday, according to sources.

Ukrainian dollar-denominated bonds, which were issued as part of its 2015 restructuring, are trading in deeply distressed territory of around 25 cents in the dollar. , , , ,

Mark Sobel, a former senior Treasury official and U.S. chairman of the OMFIF think tank, said the Rapid Financing Instrument loan being considered by the IMF would likely cover the roughly $2 billion the country owes the IMF this year.

LeCompte said the fund could freeze debt service payments as it has for low-income countries during the pandemic, or extend the loan so payments wouldn't be due for several years. Although Russia is a shareholder of the IMF, the United States and Europe hold more power and could push through such a decision, he said.

No comment was immediately available from the Treasury or the IMF on the issue.

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Reporting by Andrea Shalal; additional reporting by Karin Strohecker in London; Editing by Alex Richardson

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