Russia demands repayment of Ukraine USD 3 bln debt as part of IMF deal

The Russian government will insist on the repayment of Ukraine’s USD 3 bln debt to a Russian state fund as part of the IMF’s deal upcoming with Ukraine, Russian Finance Minister Anton Siluanov told journalists on May 17, as reported by Interfax. The debt to Russia should be included in the updated IMF program with Ukraine, Siluanov said. “How can we support such a program from the Fund if that’s not done?,” he said.

Siluanov also commented that there was no dialogue of his office with the Ukrainian Finance Ministry on resolving this debt issue.

Recall, the Russian state fund, the holder of Ukraine’s USD 3 bln Eurobond, refused to participate in the Eurobond restructuring that Ukraine completed last year. Ukraine imposed a permanent moratorium on repaying this bond, due in late 2015. In December 2015, the IMF recognized this debt as the official (non-private) obligation of the Ukrainian government.

Alexander Paraschiy: Siluanov’s statement that the Ukrainian side is not discussing the debt issue is aimed at depicting Ukraine as a borrower that is not making “good faith efforts” in debt talks. Signs of such efforts are important for the IMF to continue lending to Ukraine and to overlook its failure to pay the USD 3 bln debt on time. Nevertheless, we expect the IMF will continue to hold a neutral position on this debt dispute, limiting its formal statements to calling upon the two sides to find a solution. We believe it’s unlikely that this debt will undermine the next IMF tranche for Ukraine, provided the government meets the Fund’s requirements on all other outstanding issues.