Previous Quarterly Editions
Expropriation Risk: 70 67 65 68 ▲Political Violence Risk:90 85 85 90 ▲Terrorism Risk:24 24 24 24 ►Exchange Transfer and Trade Sanction Risk: 64 73 73 64 ▼Sovereign Default Risk:74 73 74 92 ▲
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Protest intensity to date* 2022 2023 Low LowUnrest risk in 2024**Cost of living: Very HighAnti-austerity: High
Traditionally one of the heaviest borrowers in the world from among those seeking external financing, Ukraine is currently in a somewhat exceptional or unique debt situation. The country’s public debt continues to grow — and quite rapidly, more so than at any point in the past decade — but this is not creating additional problems in the way of payment pressures, at least for the foreseeable future.
The content of this document is believed to be accurate at the time of publishing but due to the rapidly evolving situation, changes are occurring frequently and this information may have been superseded. Coverage may vary depending on the jurisdiction and circumstances. For global client programs it is critical to consider all local operations and how policies may or may not include coverage relating to the Ukraine crisis. WTW is not in a position to provide any advice in relation to sanctions. Please ensure you taking advise from you own legal and/or other professional advisors before taking any action. The views expressed in the section are the opinion of Oxford Analytica and do not necessarily reflect those of WTW.
*Note: Protest intensity is calculated based on ACLED. **Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of 'anti-austerity' calculations, see the essays in the introduction; for details of 'cost-of-living' calculations, see the previous edition of the Index.
Due to the February 2022 Russian invasion of Ukraine, which remains ongoing, the capital city of Kyiv now requires and receives foreign loans as never before, but with no real access to the debt market. For the same reason, Ukraine has to rely solely on “official” financing from its allies, that is, Western governments and international financial organizations — which entails minimal or postponed borrowing costs.
Ukraine’s total public debt, both direct and guaranteed, increased from 49% to over 78% of GDP in the war-ridden 2022 and stood at almost US$134 billion as of September 2023, according to the latest data from the Ministry of Finance. While most of that total (US$84 billion) is made of direct external debt, over half of the remainder is owed to the likes of the International Monetary Fund and the World Bank (US$10 billion and US$11 billion, respectively) as well as the European Union (US$26 billion); their loans are, as a rule, sufficiently long term, and feature relatively low interest rates.
Potentially more concerning is the fact that Ukraine has accumulated a sizeable debt on its pre-war Eurobond issues (almost US$23 billion). Payments on this debt were “frozen” thanks to the August 2022 restructuring deal — but only for two years, which means that the Ukrainian government will probably need to negotiate with bondholders again in order to get the deal extended. It was reported in October 2023 that Ukraine is already holding talks with bondholders rather than waiting into 2024.
Overall, however, the state of war that Ukraine finds itself in is conducive to preventing any outbreaks of public unrest over debt issues, especially as Ukraine is not facing the equivalent of true market costs for debt, given the nature of the debt that it is taking on.
The risk of expropriation increases again to reflect Ukraine’s further moves to nationalize assets owned by the Russian state and its citizens. In late July 2023, the government finally resolved to take control over Sens Bank (formerly known as Alfa Bank), a first-tier local lender whose owners included, through a formally European Union-based corporate registration, Ukraine-sanctioned Russian businessmen Mikhail Fridman and Petr Aven.
A nationalization of this lender had long been in the cards, ever since the Russian invasion, but eventually required adoption of a separate legislation allowing the government to acquire 100% shares in the bank.
About a month later, the Ukrainian state obtained a full ownership of corporate rights in a local producer of building materials called AEROK belonging to Russian oligarch Andrey Molchanov. Here, the nationalization was conducted based on a High Anti-Corruption Court’s ruling satisfying the Justice Ministry’s respective lawsuit.
Ukraine’s current circumstances effectively rule out any serious risk of political violence in the country for the time being. The very phenomenon of political street activism — which had proved so visible in the days of the 2014 Maidan revolution — remains today inconceivable because the existing martial law, repeatedly extended since its introduction after the invasion, explicitly forbids mass gatherings and manifestations.
In practice, however, this does not seem totally to preclude some public actions of a political or near-political nature. The case in point is a wave of small-scale but quite salient gatherings recently held by activists in front of the Kyiv mayor’s office with a demand for the city authorities to channel spare resources toward the war effort rather road and related network renovations. These gatherings have all taken place without a hint of any possible outburst of violence.
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In general, Ukraine has so far been spared what can be called terrorist attacks — but only if developments relating to the post-2014 situation in the east and the eventual direct Russian invasion are discounted. In the latter case, following the apparent failure of various saboteurs and infiltrators to perform attacks in large cities and towns at the initial stage of the 2022 invasion, Russia has resorted to regular missile and drone attacks on objects across the whole of Ukraine.
At first, throughout the past winter, the main target of such attacks was Ukraine’s energy infrastructure and then, closer to the end of summer, its sea- and river-port infrastructure. As another winter season looms, there is a growing concern that attacks on energy infrastructure are about to resume with a new force.
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Ukraine has continued to display a semblance of currency stability, owing to the National Bank of Ukraine’s (NBU, the central bank) still-tight wartime controls and restrictions. Until recently, the NBU kept the local currency — the hryvnya — effectively fixed against a de facto peg, the U.S. dollar, in the official exchange rate. There, the hryvnya’s value was unchanged since late July 2022, while its value against all other major currencies was determined depending on how these currencies trade against the U.S. dollar globally.
As of October 3, 2023, the NBU switched to what was called “managed exchange flexibility,” which means that the official exchange rate is to be determined now by trading results at the local interbank currency exchange with the NBU standing by to flatten any excessive rate fluctuations.
In terms of trade sanctions, the respective risk has so far concerned only Russia and arose even before its February 2022 invasion. With respect to other countries, September and October 2023 have seen the government in Kyiv threatening to impose a trade embargo on imports of some agricultural products from Poland and Hungary in response to these countries’ own unilateral ban on exports of Ukrainian grains; however, given ongoing efforts to resolve the conflict over Ukraine’s grain exports, chances for the above threat to be realized look slim.
Ukraine should be able to meet its external debt obligations in the remainder of 2023, possibly even without much strain, as the total sum that falls due in October – December amounts to just over US$1 billion. By comparison, the NBU’s foreign reserves stood at an all-time high of US$42 billion as of September.
However, the situation will become far more challenging in 2024 when Ukraine is to pay out altogether US$11 billion, about half of which in the third quarter — unless the Eurobond restructuring deal is extended or renegotiated.
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