Kiev: Ukraine`s government said Thursday it would begin negotiations with creditors on restructuring its debt, a day after the International Monetary Fund threw the cash-strapped country a lifeline.
Citing the need to "reduce pressure on the budget from the public debt", Finance Minister Natalie Jaresko said Ukraine "will start talks tomorrow with our creditors on a restructuring," her spokeswoman said.
Jaresko did not provide specifics, but analysts said the move would likely target bondholders rather than international lending institutions
"As far as I understand the finance ministry will enter negotiators with private creditors," Oleksandr Valchyshen, chief economist at Investment Capital Ukraine, told AFP.
Russia, in conflict with Kiev`s pro-Western government which accuses Moscow of backing the insurgency in the east with troops, training and weaponry -- allegations Moscow denies -- owns $3 billion in Ukrainian bonds.
"It remains to be seen whether Russia would agree (to a restructuring)," Valchyshen said. "Probably they would try to block it."
Ukraine`s debt is made up mainly of $17 billion in bonds, with up to $8 billion reportedly owned by Franklin Templeton, a US investment firm.
The government`s move to renegotiate the terms of the debt comes a day after the IMF gave the final go-ahead for a $17.5-billion aid package to help Kiev stave off a threatened default.
Five billion dollars will be disbursed immediately, the fund said, adding that successful debt restructuring would be "a key consideration" for the payment of later tranches.
The aid, part of an international rescue package expected to reach $40 billion, aims to support "deep and wide-ranging policy reforms," according to IMF managing director Christine Lagarde.
Part of the money will go towards shoring up the national currency, the hryvnia, which lost over two-thirds of its dollar value against the dollar in the past year as government forces battled a pro-Russian rebellion in the east.
The currency`s devaluation has nudged up the debt.
The IMF estimates that Ukraine`s debt-to-GDP ratio will hit 94 percent this year and that external debt will reach 158 percent.
Last week, Ukraine`s parliament adopted a package of reforms on which the IMF had conditioned its support.
The measures included a controversial cut to pensions for people who continue working after retiring and a threefold hike in gas prices for most households.
Ukraine is mired in a deep economic crisis, which has been exacerbated by the war in the east.
Gross domestic product is expected to fall 5.5 percent this year, following a 7.0-percent contraction in 2014.