Ukraine said on Monday it had reached an agreement in principle with a group of creditors to restructure $20 billion of international bonds, bringing the war-torn country closer to an unprecedented debt rework.

Ukraine’s announcement comes just over a week before a two-year debt suspension agreement struck in 2022 is due to run out and marks the first time a country has embarked on a debt restructuring during a full-scale war.

“After months of engagement and hard work with our private bondholders, the IMF and our bilateral partners, we have reached an agreement in principle with the Ad Hoc Creditor Committee on the comprehensive restructuring of our public external debt,” Finance Minister Serhiy Marchenko said in a statement.

This was an important step to ensure Ukraine maintained the budget stability and cash resources needed to continue financing its defence, he added.

Ukraine’s finances are precarious as its 28-month war with Russia drags on. Russia’s 2022 invasion decimated its economy, leaving it heavily reliant on money – and military aid – from international partners.

The US presidential election in November and the risk of wavering commitment to maintain support for Ukraine under a potential Donald Trump presidency increased pressure for a debt restructuring, sources close to the talks and analysts said.

The proposal would see a 37 per cent nominal haircut on Ukraine’s outstanding international bonds, saving Kyiv $11.4 billion in payments over the next three years – the duration of the country’s programme with the International Monetary Fund set to expire in 2027, according to government statements.

The government said the IMF had confirmed that the deal was compatible with the parameters of its $122 billion support package, and that the country’s official lenders, the Group of Creditors of Ukraine (GCU), had also signed off on it.

A spokesperson for the Paris Club of creditor nations, which usually handles communications for the GCU, confirmed the group was comfortable with the proposal.

The IMF welcomed the agreement and confirmed it is consistent with the current programme, adding that it will be “essential to bring Ukraine’s debt burdens to sustainable levels, thereby ensuring room for critical spending and supporting growth.”

Ukrainian Prime Minister Denys Shmyhal said in a message on the Telegram app that the deal would free up resources for urgent needs, including defence, social protection and recovery.

The Ad Hoc Creditor Committee, which holds 22 per cent of the country’s sovereign bonds, called the agreement “swift and constructive”.