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Ukrainian Debt Restructuring Deal 2015:Is VRI Beneficial for Ukraine?
Khrystyna SydorchukIvan Franko National University of Lviv
Student Conference“Ukraine at 25: evaluation of the past
and plans for the future”21st March 2016
Content1. What is Debt Restructuring?2. Ukrainian Debt Restructuring Agreement 2015:
reasons and conditions3. Calculation of future VRI payments4. Conclusions5. Q&A
The Debt Laffer Curve adopted by H. Krugman
[“Market-based debt reduction for developing countries. Principles and Prospects ñ The World Bank”. Krugman H. 1992]
Sovereign DebtRestriction: no more than 60 % of GDP
[Stability and Growth Pact]
The USA (105 %)Belgium (106,7%)
Japan (245,9 %)France (97 %)
etc.
Borrow more vs. change deal conditions
can be defined as an exchange of outstanding sovereign debt instruments, such as loans or bonds, for new debt instruments or cash through a legal process.
Sovereign Debt Restructuring
Debt rescheduling Debt reduction
“haircut” debt redemption securitization
* The Debt Reduction Facility (IDA)
* Brady Plan (N. Brady 1989)
Ukraine1991
No debts
201577,6% of GDP/ $70,5 bn
(including $46 bn of external debt)
Factors:- deep economic recession - constant budget deficit- war in the Eastern Ukraine- election campaign- pessimistic spirits in the society, etc.
• 20% ($3,6 bn) nominal haircut of the foreign debt;• increase in the coupon yield on the bonds – from 7,22 to 7,75%;• four-year maturity extension on repayments (payments will start
in 2019 till 2027).
Ukrainian Debt Restructuring Deal 2015
- no nominal value;- payments are linked to the GDP dynamics;- annual payouts could start from 15/06/2021;- payments will be capped at 1% of GDP.
Value Recovery Instrument
Real GDP growth < 3% nominal GDP < $125,4 bn no payouts
3% < Real GDP growth < 4%
Real GDP growth > 4%
pay out 15% of the real GDP growth
pay out 40% of the real GDP growth
concerning dynamics of the Ukrainian GDP during 2015-2018
Expectations of the international financial institutions
2015 2016 2017 2018% $ million % $ million % $ million % $ million
IMF -11 88 428,60 +2 90 197,20 +3,5 93 354,00 +4 97 088,30WB -12 87 435,00 +1 88 309,30 +2 90 075,50 +3 92 777,80S&P -15 84 454,30 +2 86 143,40 +3,5 89 158,40 +4 92 724,70
* compiled by the author
Dynamics of annual VRI payments depending on GDP growth
20242025
20262030
20352040
0
200
400
600
800
1000
1200
1400
annual GDP growth 3,5%annual GDP growth 4%annual GDP growth 4,5%
$ m
4021,6
2085,5
5958,3
Total, $ m:
* compiled by the author
Annual GDP growth, %
FV of VRI payments,$ m
Time period, (number of years)
PV of VRI payments,$ m
3,5 2 085,5 2026-2040 (15) 1 152,5
4 4 021,6 2025-2040 (16) 2 125,9
4,5 5 859,3 2024-2040 (17) 3 007,4
Present Value
FV – money that have to be paid in year k, n – a period of time (number of years),i – interest rate, 7,75 %
PV of VRI payments < Restructured debt ($3,6 bn) * compiled by the author
Conclusions1. PV of VRI payments < Restructured debt ($3,6 bn).2. If there is a steady growth (more than 3%), payouts
will not be burdensome.3. The result depends on the way
of economic development Ukraine will choose.
Ukrainian Debt Restructuring Deal 2015:Is VRI Beneficial for Ukraine?
Khrystyna SydorchukIvan Franko National University of Lvivchristina.sydorchuk@gmail.comhttps://www.facebook.com/christina.sydorchuk
Student Conference“Ukraine at 25: evaluation of the past
and plans for the future”21st March 2016
Thank You for attention!