With less than $6 billion in international reserves and national bank expenditures at about $1 billion per month, Ukraine will need to negotiate with some of its major bondholders to either reduce bond principals or cut interest rates. Ukraine's debt is estimated to be the equivalent of about 90 percent of its GDP after a sharp fall in the value of the hryvnia. Thus, Ukraine will need to negotiate with its creditors to meet its financial obligations — most importantly the Franklin Templeton Fund, which reportedly owns $8 billion of Ukraine's $17 billion in eurobonds. There are indications that, even if the hryvnia stabilizes at around 25 per U.S. dollar, Ukraine could try to cut its eurobonds by as much as half.
Despite plans for a $40 billion international aid package, Ukraine will likely need to seek additional funding from its Western allies. This aid may come in the form of planned assistance packages through the European Union's Eastern Partnership program or further loans from the European Commission or U.S. government. Earlier in the week, the European Commission's vice president for budget and human resources, Kristalina Georgieva, noted that Ukraine would need more financial aid over the coming years than previously projected. As long as Ukraine's defense expenditures grow and the conflict in the east continues, the government will struggle to implement the comprehensive reforms needed to build a new, professional state bureaucracy. Moreover, significant amounts of much-needed foreign investment are unlikely to flow into the country as long as uncertainty over the status of the Donbas region and Ukraine's domestic reforms persists.
