Yuriy Butsa's Comments on Ukraine's Debt Policy during War

On May 17, Yuriy Butsa, Government Commissioner for Public Debt Management, took part in a public discussion of the Center for Economic Strategy on the topic: "Ukraine's public debt is growing during the war, what to do next?".

Yuriy Butsa's key talking points during the discussion:

• Before the beginning of the full-scale invasion of the Russian Federation in Ukraine, the situation with public debt in Ukraine was one of the best among developing countries: Ukraine was the only country that came out of the covid crisis with a lower debt burden than it had before it. This achievement demonstrates the prudence of MinFin's debt policy during the recent years.
• The growth of the Debt to GDP ratio in 2022 in general did not occur because of the accumulation of new debt, but due to the decrease in GDP in Ukraine and the devaluation of hryvnia as the result of the full-scale invasion of the Russian Federation.
• The accumulation of new debt is a completely natural consequence of the war due to a sharp reduction in revenues and an increase in state budget expenditures. In such conditions, the primary task of the Ministry of Finance is to reduce the cost of debt as much as possible. Unfortunately, it is not possible to cover all of our financing needs solely with grant funds. Programs of this size simply do not exist. Therefore, the second best option is to receive maximum concessional loans, such as those we receive from the EU. Thanks to such loans, we will be able to maintain debt sustainability, because in the event of an increase in the size of the state debt, its servicing is absolutely managebale for the State Budget of Ukraine.
• The domestic government bond market is fully functional. The Ministry of Finance held the first local government bond auction on the fifth day of the full-scale invasion of Ukraine and has not missed a single auction since then. All instruments placed by the Ministry of Finance now have a positive real yield. The situation on the secondary market of domestic government bonds has significantly improved: bid/ask spreads have decreased significantly. In order to maintain debt sustainability and reduce the risk of refinancing, we use all the opportunities to place instruments with a longer maturity.
• Citizens of Ukraine are increasingly saving and multiplying their savings by investing in government bonds. This is important for the state. And we expect that in the future, through investments in local government bonds, citizens will be able to participate in the reconstruction of Ukraine.
• The cost of restoring the state from Russian aggression is very high. It will not be possible to cover such amounts of funding only through grant funds. At the same time, there is a danger of worsening debt sustainability in the event of a significant increase in the volume of debt financing. Therefore, loans for restoration should be as cheap as possible, ideally with a coupon payment compensation.
• The most obvious source of compensation for damages is the funds of the aggressor, and we must all work together to secure such compensation. Since the process can be lengthy, it is advisable to consider intermediate options for using Russian frozen assets to obtain financing in the short term with the involvement of the private sector.

For more information about the debt policy of the Ministry of Finance of Ukraine during the war, see the video recording of the discussion on the topic: "Ukraine's debt is growing during the war, what to do with it?".