Ukraine had no debt following the fall of the Soviet Union and a healthy 35% of GDP before the war with Russia began three years ago. But its debt has ballooned since then, as most of the money the West has sent to Kyiv has been in the form of loans that must be repaid, not grants that don’t.

“Since the beginning of the invasion of Ukraine in February 2022, external public debt has more than doubled, rising from $56bn to $115bn,” Eric Toussaint of the Committee for the Abolition of Illegitimate Debt said in a report on Ukraine’s rising indebtedness. “Ukraine’s external public debt which comes to a little over $115bn is distributed as follows: just under $50bn owed to the EU, $20bn to the World Bank, $18bn to the IMF, $5.2bn to Canada, $1bn to Japan and $20bn owed to private creditors on the financial markets.”

At the end of 2024, Ukraine’s external debt had risen to 84.7% of GDP and is still climbing. By percentage, 44% of Ukraine’s public external debt is owed to the EU, about 33% to the World Bank and the IMF together, 4% and 1% to Canada and Japan respectively, and about 18% to foreign private creditors (who mainly hold Ukrainian sovereign securities restructured in September 2024).

As the end of the war looms, the issue of paying off debts incurred since 2022 is starting to become significant. The World Bank recently upped its estimate of what it will cost to rebuild Ukraine to $524bn from its earlier assessment that the total damage amounts to $486bn, but so far there is no funding in place to cover this enormous cost, other than a suggestion that Russia’s $300bn in frozen assets should be seized to pay for reconstruction. If debt payments begin in the years after the war stops, the difficult problem of raising money to pay for the rebuild will become much harder.

Ukraine’s public debt has risen by almost two thirds (60%) since the Russian invasion in February 2022, reaching nearly $160bn by the end of 2024, compared with just under $100bn before the war. This includes $45bn in domestic public debt, with the largest increases owed to the European Union, the World Bank, and the International Monetary Fund. The Biden administration was fairly generous, as much of the circa $90bn it sent was in the form of grants, not loans, although that has started to change in the last year.

EU is Ukraine’s biggest creditor

The EU has become Ukraine’s most significant creditor, with Kyiv’s debt to the bloc mushrooming more than eightfold over the last two years. From $5bn at the start of 2022, Ukraine’s debt to the EU had grown to $43bn by late 2024. When factoring in obligations to the European Investment Bank and the European Bank for Reconstruction and Development – both of which are increasingly becoming the vehicles for funding the country – the total reaches $47bn.

Unlike grants, EU financial assistance largely consists of loans, and has deepened Ukraine’s financial dependence on Brussels. While the EU does not intend to demand its money back immediately it is intending to use the debt repayments as leverage to force Kyiv to put through market-based reforms. It could also use the debt to force Ukraine to asymmetrically open its markets to EU big business that have their eye on Ukraine’s most lucrative sectors, such as agricultural and metallurgy. Under the terms of the Deep and Comprehensive Free Trade Areas (DCFTA), the EU offered tiny duty-free import quotas on things like honey that were usually used up in the first weeks of each year but demanded free access to Ukraine’s market.

These issues are due to come up again. Last year, several Central European countries imposed unilateral (and illegal under EU rules) bans on imports of Ukraine’s agricultural goods after prices on the Polish grain market collapsed after it was flooded by low quality cheap grain that was supposed to be delivered to Europe. At the same time, Polish truckers have blockaded the Poland-Ukraine border after Ukrainian logistics companies drastically undercut Polish services.

More recently, the four Central European countries have demanded the return to pre-war quotas for Ukrainian agricultural products this month. Hungarian Agriculture Minister Istvan Nagy said: “We protect the interests of farmers from Ukrainian agricultural products. In a joint letter with my colleagues from Bulgaria, Romania and Slovakia, we call on Brussels to act. The EU legislation regulating imports from Ukraine expires in June, so the EC must find a long-term solution to the market difficulties caused by Ukrainian agricultural products.”

These will be difficult talks – especially now Ukraine is an EU-candidate country – but Kyiv goes into the negotiations with a weak hand, as it is already deeply in debt to Brussels.

IFI loan sharks

When Ukraine gained independence from the Soviet Union in 1991 it had no debt. Kyiv only started borrowing from the IMF and the World Bank in 1994, when the initial chaos of the collapse receded and the work on transition got under way in earnest. Over the next three decades, Ukraine has entered into 14 loan agreements with the IMF, each contingent on neoliberal policy reforms, including privatisations, reductions in public services and wage cuts.

Most of the loans from the big development banks in the 1990s were deferred, but in 2000 they began to become due and a real burden. Between 2000 and 2007, Ukraine repaid $4bn, while only receiving $700mn in fresh loans during the same period. Following the eruption of the great financial crisis in North America in 2008, the volume of loans went shooting up again over the next three years to $14.3bn from the IMF alone, and again came with a deferred repayment schedule as the whole world reeled from the financial shock. During those three years Ukraine was only asked to repay a total of $800mn.

But then the crunch came. In 2011, both the IMF and World Bank wanted their money back and Kyiv had to shell out a whopping $10bn in repayments over the next three years under the government of Viktor Yanukovych. The government was forced to cut social service payments and strapped for cash, Yanukovych eventually rejected an offer to sign an Association Agreement with the EU in 2013, when it rebuffed his demands for a $20bn loan and instead did a $15bn credit deal with Russian President Vladimir Putin, receiving $3bn immediately with no strings attached, that sparked the EuroMaidan revolution and brought him down.

Putin’s annexation of the Crimea in 2014 brough another round of IFI credits on lenient terms, but Kyiv stopped paying the interest payments in 2015 as a civil war with separatists in the east of the country slowly escalated. The IMF lent Kyiv another $11bn in those two years, doubling its debt to the IMF.

Following EuroMaidan was a difficult period under the Poroshenko administration as Kyiv dragged its heels on the reform effort. Eventually, the IMF downgraded Kyiv’s aid from an three-year extended fund facility (EFF) to the stricter one-year standby agreement. Kyiv only received about half the money allotted to the programmes, as punishment for failing to meet the agreed reform targets.

The World Bank has been a big player among the international financial institutions (IFIs), and lending to Ukraine has more than tripled since 2022, rising from $6.2bn to $20bn. The IMF has also been very active, increasing Ukraine’s obligations from $14bn to $17.6bn in the war years.

But despite the war, both institutions continue to demand repayments, and both lend money on very onerous terms: the IMF charges interest rates of up to 8% on the billions it sends to Kyiv, and collected nearly $9bn from Ukraine between 2022 and 2024 – including $2.4bn in 2022, $3.4bn in 2023 and $3.1bn in 2024, a total of $9bn in these years – demanding repayments on its loans despite the fact that Ukraine was in the middle of a war and depended on help to fund half its expenditures.

Kyiv has also borrowed from the international capital markets through issuing some $20bn in Eurobonds. Payment on the coups was suspended after the war broke out and the debt restructured last year, reducing the total debt to $18.2bn.

The deal was similar to one cut with bond investors in 2015, during the last financial crisis. Investors were compensated for the delay and haircut with GDP warrants – an instrument that kicks in after five years and is linked to economic growth, paying out a share of GDP to investors once a minimum growth threshold is passed. The bet is on a post-war bounce-back and boom, which could make the warrants very lucrative indeed.

Reform strings

Until US President Donald Trump arrived on the scene, Washington had been one of Kyiv’s best and most generous friends. Unlike the European institutions, the US has preferred to provide financial support in the form of grants rather than loans. Washington remains highly influential in Ukraine’s economic policy indirectly through its control over the IMF and World Bank as well as its role in supplying Kyiv with military aid, that makes up two thirds of all the aid it sends in monetary terms.

In return for financial assistance, Ukraine has agreed to 325 reform commitments, as outlined by the Ukrainian Ministry of Finance. These are linked to 531 performance indicators, with financial disbursements contingent on adherence to the reform schedule. The European Commission, the IMF and the World Bank closely monitor compliance with these conditions.

And Ukraine’s thirst for loans will not abate. Thanks to the surge in aid by the outgoing Biden administration it has enough money to fund at least another year of war. Indeed, for the first time it received all the Western commitments on time in January, which has allowed the government to allocate an extra $5bn to defence spending and sent the international reserves soaring to a comfortable $48bn – a record in recent years.

“In 2024, the EU, the United States and other G7 members agreed on the new aid plan for Ukraine. Within this framework, the EU adopted a plan amounting to up to €50bn for the period 2024 to 2027,” says Toussaint. “The plan adopted provides for a total disbursement of €38.27bn between now and the end of 2027. Most of this (€33bn, that is 85%) is in the form of debts that will have to be repaid. [Grants] only account for €5.27bn, i.e. 15%. The [grants] part probably corresponds to the amount seized by the European Commission on the revenue from frozen Russian assets, mainly in Brussels.”

As part of a new aid package agreed in 2024 by the G7, the EU has approved a financial assistance programme for Ukraine worth up to €50bn ($54bn) between 2024 and 2027, that will be backed by the interest earned on the Central Bank of Russia’s (CBR) frozen $300bn of reserves.

The EU has already promised its €38.27bn share of this G7 loan to be disbursed by the end of 2027, 85% (€33bn) will be in the form of repayable loans, while only 15% (€5.27bn) will be grants. In 2024 alone, the EU transferred €12.4bn to Ukraine. The grant portion is likely to be covered by revenues generated from frozen Russian assets, primarily held in Brussels, but the bulk of the aid is a loan and will have to be repaid.