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(Bloomberg) -- Ukraine asked the International Monetary Fund for a longer-term loan and will consult its debt holders for possible relief as economic pressures push the country to the brink of a default.

After meeting with Ukrainian officials in Davos, Switzerland, IMF Managing Director Christine Lagarde said the authorities requested a financial aid package she’s prepared to support. The so-called extended fund facility would replace a $17 billion standby arrangement the IMF granted in April.

Ukrainian Finance Minister Natalie Jaresko, in a statement to reporters after the meeting, said “we will also consult with the holders of our sovereign debt with the view to improve medium-term debt sustainability.”

After the announcement, Ukrainian government bonds maturing in July 2017 sank to their lowest level on record, pushing the yield up to about 41 percent as of 8 p.m. in Kiev.

“The market is taking this as confirmation of restructuring fears,” Olena Bilan, chief economist at Kiev- based investment bank Dragon Capital, said by phone when asked about Jaresko’s comments. “The main question now is whether it will be a light restructuring, that is to say maturity extension, or if there will be a nominal haircut.”

Ukraine needs $15 billion on top of the previous IMF bailout to stay afloat, according to the European Union. The government was seeking to unlock the next tranche of the IMF financing.

Larger Financing

The extended loan facility lasts longer than the current arrangement, and “as a result, its financing is also larger,” Lagarde told reporters today at the World Economic Forum meeting in Davos.

“It is a demonstration of the determination of the Ukrainian authorities to conduct serious long-term structural reforms in addition to also adjusting their fiscal policy in order to make sure that the Ukrainian economy is in a position to recover,” she said.

The proposed new IMF arrangement will “allow us to gain access to additional resources, which in turn will enable us to return to economic growth, to restore adequate FX reserves and ensure economic and financial stability going forward,” Jaresko said.

Lagarde said the IMF board will be convened “as quickly as possible” to to review the request, which she would “certainly propose to support.”

The U.S. earlier this month pledged as much as $2 billion in loan guarantees to Ukraine as the former Soviet republic tries to avoid default amid an insurgency in its easternmost regions. The U.S. assistance follows EU aid of 1.8 billion euros ($2.08 billion).

--With assistance from Olga Tanas in Davos, Switzerland,, Daryna Krasnolutska in Kiev and John Fraher in London.

To contact the reporters on this story: Andrew Mayeda in Ottawa at amayeda@bloomberg.net; Stefan Riecher in Davos at sriecher@bloomberg.net To contact the editors responsible for this story: Chris Wellisz at cwellisz@bloomberg.net Brendan Murray

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