Ukraine imposes moratorium on debt payments to Russian Federation

But the Fund has also changed its policy to allow it to keep lending to countries in arrears on repayments of such debt, effectively throwing Ukraine a borrowing lifeline.

Mr. Yatsenyuk said at a government meeting on December 16 that Ukraine’s Cabinet of Ministers had decided that “the supplying of goods, work and services to Crimea and from Crimea” will be banned within 30 days.

On Thursday, Ukraine announced that it can not make the bond payment without violating a debt-restructuring deal with other global creditors.

It followed the overthrow of a Moscow-allied president in Kiev and Russia’s annexation of the Crimean peninsula from Ukraine in what grew to be the biggest spat between Moscow and the West since the Cold War.

Ties soured further after Ukraine launched military operations in April 2014 to silence pro-Russia forces in the country’s eastern regions of Donetsk and Lugansk.

That deal has seen countries accept a 20 per cent write-down of their Ukrainian bond holdings, a move that has cut Ukraine’s sovereign debt from $19 billion to $15.5 billion.

In November, Russian President Vladimir Putin offered a three-year restructuring plan for Kiev’s debt, provided loan guarantees were in place from the United States, the European Union and the International Monetary Fund. Under the offer, Russia would forgo payment this year and Kiev would pay $1 billion a year for the next three years.

The IMF this week agreed with Moscow that the bond consists of an official loan.

Russian officials have threatened to launch legal action by the end of the year to reclaim the cash from Ukraine.

William Jackson, an emerging markets analyst at Capital Economics, said the implications of the moratorium were unclear.

The fund meanwhile expressed concerns Friday over parliament’s rejection this week of a draft budget for next year and a new tax code, saying that a balanced budget is a “key condition” for funding and deviating from it would “inevitably disrupt the associated worldwide financing”. “But it’s not hard to envisage any debt talks breaking down”, he said.