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Mark Whitehouse

Ukraine's Debt Debacle

War is making a mess of the Ukrainian government's finances.
Rebuilding will be harder.

Rebuilding will be harder.

Photographer: Genya Savilov/AFP/Getty Images

Even as its conflict with Russian-backed secessionists festers, the Ukrainian government is facing a growing threat on the economic front: A sovereign debt burden that is rapidly becoming unbearable.

The insurgency in the east has undermined the Ukrainian government's finances in two ways beyond the direct costs of war. First, by crippling industrial regions that accounted for as much as 20 percent of the country's output, it has pushed the economy into a deep recession. Second, by triggering capital flight and an attendant plunge in the value of the Ukrainian hryvnia, it has made the government's largely dollar-denominated debts much larger in local-currency terms.