Ukraine has a growing debt problem that the government under President Volodymyr Zelensky is only making worse. The International Monetary Fund’s financial support for Ukraine is conditioned on the country making various reforms that will reduce its dependence on international assistance in the future. Kyiv, however, appears to be looking for ways to circumvent the IMF’s conditions while still tapping into the market for government debt. That’s a dangerous strategy for a country whose relationships with the United States and the countries of Western Europe—which together constitute the main source of IMF funds—remain indispensable as it fights off Russia on its eastern border.
The government’s avoidance of reforms should worry the Biden administration in the United States: A Ukraine sliding away from democratic reforms will be more vulnerable, while a sluggish economy could reverse its trade reliance from the European Union back to Russia. A more prosperous, democratic Ukraine, on the other hand, means a less powerful Kremlin. But by aggressively tapping into capital markets, where Ukraine pays very high interest rates, and by dragging its heels on reforms expected by the IMF, Ukraine’s current administration is only putting the country at more risk, while facing a worrisome level of debt.
