Ukraine's Debt Crisis: A Closer Look at the Possibility of Default (2014)

Ukraine is a country located in Eastern Europe that gained independence from the Soviet Union in 1991. Despite its large land area and rich natural resources, Ukraine's economy has struggled since its independence, and the country has been facing various financial challenges in recent years. One of the biggest challenges Ukraine has faced is the possibility of default.

A default is defined as a situation where a borrower is unable to repay its debt. The possibility of default in Ukraine has been a matter of concern for many years, and has been the subject of numerous articles and discussions.

In 2013, former President of Ukraine, Viktor Yushchenko, warned that Ukraine could default in the same year if the government failed to resume borrowing from the International Monetary Fund. This warning was based on the fact that Ukraine was facing massive debt repayments and had limited access to external funds.

In the same year, the Bloomberg agency stated that Ukraine was the next country after Greece to default in debt repayments due to the poor state of its economy. The analysts cited the International Monetary Fund (IMF) as doubting Ukraine's ability to repay its 12 billion dollar debt. However, not all experts agreed with the conclusion of the analysts, as some saw political undertones in the prediction of a default.

By the end of 2012, Ukraine's foreign currency holdings had declined significantly, going from $31 billion to less than $21.7 billion. This decrease in foreign currency holdings was accompanied by a decrease in the country's level of "import coverage". Import coverage is defined as the number of months' worth of imports that a country can afford with its current level of foreign reserves. A level of less than three months is usually seen as problematic, and Ukraine's level had been declining steadily for two years.

Despite the dire situation, experts remain optimistic that Ukraine can avoid a default. The CEO of Dragon Capital investment company, Tomas Fiala, stated that one should not expect default in Ukraine. According to Fiala, Ukraine has several safeguards that it can use, and the most effective one is to resume cooperation with the IMF. In fact, a new IMF program has been established with the aim of removing the default issue from the agenda.

It is worth mentioning that the current political situation in Ukraine has also impacted its economy. In 2014, Russia stopped its credits and direct investments, which resulted in a serious social and political destabilization in Ukraine. This event contributed to the current financial difficulties faced by the country.

In conclusion, the possibility of a default in Ukraine has been a matter of concern for many years. Despite the various challenges faced by the country, experts remain optimistic that Ukraine can avoid a default if it resumes cooperation with the IMF and takes the necessary measures to stabilize its economy.