The debt relief is part of a broader financial support programme agreed on with the International Monetary Fund

The Ukrainian government said on Thursday it has reached a crucial deal with its international bondholders to lighten its public debt burden, a move that will help the country avoid default as it tries to cope with the devastating costs of war.

As part of the deal, investors who own Ukraine’s bonds will write off 20 per cent of their holdings, shrinking $19 billion in sovereign debt to $15.5 billion, Prime Minister Arseniy Yatsenyuk told the government.

The deal will also extend the payment period on the government bonds by four years through 2027. Payments on the bonds will depend on the growth rate of the economy, which has been battered by a separatist war in the east. Ukraine will pay nothing on its bonds if its economy grows less than 3 per cent annually.