Management of the Government Debt of Ukraine During the War and in the Post-War Period

So far, Ukraine has managed to keep the debt burden manageable at less than 80% of GDP, and thanks to the partners’ help and the creditors’ support during the war, the issue of debt repayment is not yet acute.

After the war, however, debt management will become one of the key challenges. In 2024-2027, Ukraine’s anticipated external debt payments will correspond to 6% of the 2022 GDP, and the problem of peak payments appears as much more important than the overall level of indebtedness relative to the size of the economy.

These are not final figures yet because the war continues, and every month Ukraine incurs new debts to cover an unprecedentedly high budget deficit, while the attacks by russians continue to damage the economy daily. Moreover, even during the war, priorities in fundraising may rely upon the expected impact on future post-war repayments.

In this study, we looked at the international experience, mechanisms, and tools that countries have used to reduce their debt burden. To identify the scope for these and other tools in the strategy of government debt management during the war and in the post-war period, we conducted a series of interviews with leading Ukrainian and foreign analysts.

Among the debt reduction factors, we considered the attraction of international aid in the form of grants as well as cheap and long loans; the “financial repression” policy, when interest rates on debts are lower than inflation; economic growth; primary budget surplus; debt restructuring; as well as privatization of state assets and reparations from the aggressor country.

One focus of the study was cooperation with the IMF. For the first time in its history, the Fund is providing loans to a country in a state of war and uncertainty regarding its ability to repay its debts. For this purpose, it has changed its policies. The IMF has been able to approve an Extended Fund Facility program of USD 15.6 billion. The program would make it possible to refinance the debt owed to the Fund, which would otherwise have had to be repaid using aid from other donor countries.

The main conclusion of the paper is that during the war Ukraine should attract as much grant funding and as many ultra-long-term loans at concessional interest rates as possible. And after the war, Ukraine should do all it can for its economic growth and gradually, when the economy recovers, move to a primary budget surplus.