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Only ‘minimal’ risk of default: Ukrainian official

Ukraine is at "minimal" risk of defaulting on its debt repayments, according to a leading official, despite a currency in freefall and an apparent $15-billion black hole in its bailout from the International Monetary Fund (IMF).

"We do have economic difficulties, but that is something that is going into the debate with the IMF," Dmytro Shymkiv, deputy head of presidential administration, told CNBC.

"The risk of default is minimal," he added, arguing that 95 percent of the country was not suffering as a result of the military conflict in the east of Ukraine.

A further $15 billion may be needed to bailout the struggling country, on top of the $17-billion loan package the IMF worked out for the troubled country, and Prime Minister Arseny Yatseniuk appealed for Western help to stop a default on Thursday.

Donetsk, Ukraine
John MacDougall | AFP | Getty Images
Donetsk, Ukraine

Ukraine's currency, the hryvnia, has lost over 90 percent of its value against the U.S. dollar to date this year, as conflict raged on its borders.

Inflation is spiralling, and the country is facing a future without cheap gas supplies from neighbor Russia, after their fallout over the deposition of former Ukrainian President Viktor Yanukovych and subsequent emergence of a more pro-European government in Ukraine.

The economies of Donetsk and Luhansk, the areas where fighting between the Ukrainian army and pro-Russian separatists is worst, have ground to a halt – but these account for close-to a fifth of the country's economy, according to Yatseniuk.

There is some hope that negotiations to resolve the conflict may re-open soon, with President Petro Poroshenko saying Friday morning that the country had experienced its first 24 hours of proper ceasefire in seven months.


Shymkiv, the former head of Microsoft Ukraine who is now tasked with implementing much-needed administrative, social and economic reforms in the country, said: "We're trying to bring our knowledge and experience to the development of the country. That's the only way we can bring it out of the mis-development of the economy."

Asked about potential conflict between Yatseniuk and Poroshenko, he said: "There aren't conflicts between President and Prime Minister. We have no time to have disputes."

He added that he believes Ukraine is still on the radar of international investors, after discussions in London this week, and argued that it is possible for the country to turn back the tide on rampant corruption.

"Ukraine can still escape a financial meltdown," according to Anders Aslund, senior fellow at the Peterson Institute for International Economics, who wrote in a blog this week that the government, "appears to be prepared to do what it takes" but "needs to cut public expenditures fast."

That may not be fast enough for bond investors. The yield on Ukrainian debt due for repayment in September has shot up to more than 50 percent, suggesting that investors think there is a high chance the country may default on repaying this debt.

"Within the next six months, there will be absolutely different indicators on the economy. Keep us on the list, we'll be back," Shymkiv added.


Correction: This version corrects the job title of Dmytro Shymkiv.