The International Monetary Fund (IMF) may have thrown Ukraine a lifeline, but the country needs restructure its mountain of hard currency debt before the economy stabilizes, analysts warn.
"It looks all but inevitable that Ukraine will [now] need to restructure its public debts, but there's a huge amount of uncertainty about what the restructuring might look like," said Capital Economics' senior emerging markets economist William Jackson in the note.
Conflict with pro-Russian separatists in eastern Ukraine that started last year has devastated the country's economy. Ukraine's currency, the hryvnia, has depreciated around 40 percent since the beginning of the year, more than doubling the country's debt-to-gross-domestic-product ratio to around 95 percent in local currency terms, according to a Capital Economics note published on Wednesday.
And while the IMF extended a fresh $17.5 billion four-year loan to "support immediate economic stabilization" in Ukraine on Wednesday, that may not be enough.
"[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," Stratfor Global Intelligence said in a note published on Wednesday.
A sizeable chunk of Ukraine's debt is owed to domestic investors and international institutions. But the government can probably prevail on local banks and international organizations to roll over their share – 30 percent and 10 percent, respectively – analysts say.