Talks between Ukraine and its international bondholders designed to cut its debt to help finance its war effort ground to a halt on Monday after the two sides failed to reach an agreement.
It means the clock continues to tick down to a potential $23 billion sovereign default later in the summer. That's a headache that Kyiv and supportive institutions like the International Monetary Fund (IMF) will want to avoid, so what happens now?
KEEP TALKING?
The two sides seem far apart but Ukraine's Finance Minister Serhiy Marchenko says his team will continue talking to bondholders. In fact it will expand the list as previously it was only speaking with a select group of larger creditors - money managers like pension and investment funds - whose names have not been disclosed.
The issue though is that the government is facing a tight deadline. A two-year debt freeze struck months into Russia's February 2022 invasion runs out at the start of August, meaning Kyiv could soon find itself on the verge of default again.
WHAT WOULD BE DIFFERENT?
One thing that could make a difference according to one source familiar with the situation is that the IMF is due to provide new estimates on Ukraine's economy in the next few weeks as part of the fourth review of the $15.6 billion support programme it set up for the country last year.
On one hand, Russia's advance towards Ukraine's second biggest city Kharkiv and attacks that have destroyed half of Ukraine's electricity-generating capacity in recent months are likely to mean the numbers look worse. The government warned in the statement on Monday that "illustrative structures and associated economics" from the IMF figures would likely be revised downwards in the fourth review.
At the same time though, the Group of Seven (G7) rich democracies have just agreed to use proceeds from frozen Russian assets to give Ukraine $50 billion in loans which should help rearm the army and rebuild the economy - if only in the longer term.
By talking to a broader set of bondholders, Ukraine might also get a better sense of whether a compromise deal that all parties can accept is possible.
Ukraine's proposal that was rejected had asked the creditors to slash the value of their bonds by up to 60 percent. The creditor committee in return had proposed cuts of just over 22 percent.
The government also launched some other scenarios, such as the "amended base structure" with potentially better terms. While those never made it to the formal proposal stage and were illustrative only, it indicates there might be other structures to talk about.
WHAT IF THERE'S STILL NO DEAL?
The difficulties in the talks have reflected the deep uncertainty about what happens in the war and how much debt Ukraine’s economy will be able to carry afterwards.
If no agreement can be struck, Ukraine would likely be heading for default in August, unless it decided it was better to start making the payments again or got an extension to the current debt freeze arrangement.
The big problem though is that without Kyiv cutting its debt level, the IMF might come under pressure to put the breaks on its crucial programme, as Ukraine's finances would be viewed as just too unsustainable.
