Ukraine’s deepening recession and the slide in the central bank’s FX reserves have raised fresh questions about whether the government will default on its debt. On the economics alone, we think default looks almost inevitable. But the picture is complicated by politics. The US, EU and IMF are unlikely to allow Ukraine to have a messy default. Accordingly, as and when Ukraine’s debt is restructured, it is likely to be orderly and under the auspices of an international bailout. This should limit the dislocation to Ukraine’s financial markets and the broader economy.
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