IMF says it expects Ukraine to keep paying debt despite default speculation

FILE PHOTO: A participant stands near a logo of IMF at the International Monetary Fund - World Bank Annual Meeting 2018 in Nusa Dua, Bali, Indonesia, October 12, 2018. REUTERS/Johannes P. Christo

The International Monetary Fund expects Ukraine to continue to service its foreign debt, an IMF spokesman said on Thursday as speculation grows that Kyiv could default on its debt as its battle against Russia's invasion rages on.

At the moment Ukraine is servicing its debt in an orderly way, IMF spokesman Gerry Rice told a scheduled news briefing. "We would expect that to continue."

FILE PHOTO: Ukrainian service members install a national flag on Snake (Zmiinyi) Island, as Russia's attack on Ukraine continues, in Odesa region, Ukraine, in this handout picture released July 7, 2022. Press service of the Ukrainian Armed Forces/Handout via REUTERS

He said the Fund sees international community grant financing as a priority for the immediate and short-term, as "that would allow the Ukrainian government to remain operational without incurring further debt."

Ukraine's state-owned gas company, Naftogaz, asked its international creditors earlier this week to allow for a two-year deferral on debt payments, fueling bets that the sovereign could follow.

Creditors were urged on Thursday to reject the company's request.

A senior U.S. Treasury official, asked about the possibility of a Ukrainian default, said that would not be surprising given the damage the war has caused, but it was still too early to gauge the extent of the damage.

The official spoke to reporters during Treasury Secretary Janet Yellen's trip to a G20 finance meeting in Indonesia, where the Ukraine war will be a key topic of discussion and a source of discord within the group of major economies.

Ukraine's economy and government revenue have shrunk significantly since Russia's invasion in late February, and G7 wealthy democracies have pledged some $20 billion in support to keep Ukraine's government operating over the next few months.

Ukrainian officials have said that maintaining debt service was important for the country to be able to attract investment after the conflict ends. But Ukrainian presidential adviser Oleh Ustenko said in June that Kyiv will need to start discussions with creditors on external debt restructuring if the war with Russia continues for a long time..

(Reporting by Rodrigo Campos in New York and David Lawder in WashingtonAdditional reporting by Andrea Shalal in Nusa Dua, IndonesiaEditing by Matthew Lewis)