Saving $100 million a year: how the IMF is easing Ukraine’s debt burden in times of war
14 October 2024 15:05
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Ukraine can reduce its debt burden by almost 40% due to the International Monetary Fund’s decision to reduce the cost of borrowing for developing countries. Andrii Dligach, Doctor of Economics and CEO of Advanter Group, told Komersant ukrainskyi about this in an exclusive commentary. What is the basis of the IMF’s generosity and how much does the debt burden on Ukraine decrease – CU has analysed.
The IMF will reduce the cost of servicing public debt for developing countries. The IMF press service announced therelevant decision on Friday, 11 October. Thus, from November 2024, the Fund will reduce fees (charges, surcharges and commitment fees) that increase the cost of debt service for developing countries.
According to IMF Managing Director Kristalina Georgieva, these measures are aimed at supporting member countries in the face of a difficult global economic situation and high interest rates.
“In a challenging global environment, our member countries have reached consensus on a comprehensive set of measures that significantly reduces borrowing costs while preserving the IMF’s financial capacity to support countries in need,”
– Georgieva said.
The approved changes will reduce the cost of borrowing by 36%, which equates to approximately $1.2 billion annually. It is also expected that by 2026, the number of countries subject to additional fees will be reduced from 20 to 13. This decision is aimed at easing the burden of public debt for countries that have been most affected by economic difficulties and need access to cheaper resources for recovery and development.
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Ukraine can save USD 100 million a year
Andriy Dligach, Doctor of Economics and CEO of Advanter Group, estimates that Ukraine will be able to save about $100 million a year on debt service if the current intensity of IMF financing programmes is maintained.
“This is a significant saving that will lead to a 38% reduction in Ukraine’s debt burden,”
– said Andriy Dligach.
Dligach also explained that under the same financing programmes, Ukraine will pay 30% less for each dollar of the loan, which means a reduction in the annual interest rate from 7% to less than 5%. This was made possible by the IMF’s decision to support developing countries in a challenging global economy.
“The IMF is not a profit-making organisation, its goal is to help countries. Given the risks associated with the war in Ukraine, the Fund has made an unprecedented decision to support our country, although this is usually accompanied by higher interest rates. But given its mission, the IMF has decided to reduce its yields to help countries in need of financial support.”
Andriy Dligach
This decision of the IMF opens up new opportunities for Ukraine in terms of optimising its debt obligations and creating more favourable conditions for economic growth in a difficult period, the economist adds.
This step by the IMF is an important signal to the global economic community that the Fund is ready to adapt its financial instruments to help countries facing economic challenges.
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Author: Anastasia Fedor
