A tentative cease-fire and multibillion-dollar IMF aid package buys Ukraine time to stabilize its battered, war-torn economy.
But with high reconstruction costs and a long list of badly needed reforms, the risk of a government bond default remains high.
After more than a year of armed conflict, Ukraine has also seen its currency and economy contract sharply. Inflation is soaring, and business and consumer confidence have plummeted, according to a recent survey by the National Bank of Ukraine.
The collapse in Ukraine's hard currency reserves has left the government with little cash to cover imports, especially critical shipments of Russian natural gas.
To keep the government afloat, the International Monetary Fund on Thursday announced a $17.5 billion aid payment. Kiev needs roughly that much just to pay this year's debt obligations and cover the cost of imported natural gas, according to Bank of America Merrill Lynch estimates.
The deal buys some time, but will do little to repair the war's damage to the Ukrainian economy or the government's longer-term burden of a heavy debt load, which increases as its gross domestic product and its currency shrinks.
"You can't restore growth when there's a war on and you've got an unsustainable debt burden, and precious revenues you've got to use to repay that debt," said Gabriel Sterne, head of global macroeconomic research at Oxford Economics.
To spur growth, the IMF has also been pressing Ukraine on a list of needed reforms. Those include an overhaul of its banking system, a reduction in energy subsidies, reform of state-owned enterprises, cracking down on tax evasion and tougher anti-corruption laws.
But the effort to advance those measures has been hampered by the conflict.
"The Ukrainian government doesn't have any control over most of this," said Stern. "When you're in a war situation there's very little you can do in terms of meaningful structural reforms. What should politicians be focused on—passing tax legislation or the fact that your country's being invaded from the east?"
Ukrainian bonds rallied on Thursday after trading as low as 55 cents on the dollar, a sign that investors are expecting that the country's debt will eventually have to be restructured.
But the prospect of further economic contraction, along with the threat of a deeper slide in the local currency, complicates any possible deal with investors. Those could include a combination of stretched-out repayments, lower interest payments or writing down principal.