Ukraine’s public debt: why it has become cheaper and how it will affect the economy
7 February 15:55
ANALYSIS
Since 2022, Ukraine’s public and publicly guaranteed debt has become 1.5 times cheaper and twice as long in maturity. In 2024, public debt increased by 14.3%, reaching $166 billion. However, the trend toward lengthening the maturity and reducing the cost of debt has continued not only in 2024 but also over the past few years.
In particular, as of December 31, 2024, the weighted average interest rate on public and publicly guaranteed debt decreased by 1.5 times – from 7.79% to 5.09%, and the average maturity doubled from 6.27 years to 12.26 years. This was reported by the Ministry of Finance.
What does this mean for Ukraine’s economy and how can it affect ordinary Ukrainians? "Komersant Ukrainian" analyzed in detail.
In an exclusive commentary for , economist Oleg Pendzin explained how the amount of debt affects the country’s economy and what consequences it has for ordinary citizens. According to the expert, the amount of debt is completely individual, depending on the country’s economic power.
“There are large economies that have a much larger debt. For example, Japan has a debt of 250% of GDP, the United States – 125%. For Ukraine, where the debt is 80% of GDP, this is a relatively small figure. However, for an economy such as ours, the maximum debt it can sustain should not exceed 60% of GDP,”
– said the economist.
Can countries do without debt?
Penzin emphasized that there are no countries that do not borrow.
“Taking on debt is beneficial because it makes it possible to boost the economy by paying only interest. However, in reality, as a rule, the debt is not repaid, it is simply re-lent,”
– he says.
There are several ways to borrow money: through commercial markets, international financial organizations such as the IMF, or through bonds. Pendzin clarified that when the state borrows in the form of international borrowing, it is usually accompanied by political requirements. For example, loans from the EU or the IMF often require certain political conditions to be met.
“When receiving money through international financial markets, the country is not obliged to fulfill political conditions, but these funds are more expensive. For example, loans from governments usually have low interest rates, often even free of charge,”
– the economist explained.
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How is the cost of debt reduced?
According to Pendzyn, the Ministry of Finance of Ukraine is trying to reduce the cost of public debt by refusing commercial borrowing and focusing on loans from other countries. This allows for a significant reduction in interest.
“When we say that the debt has become cheaper, we mean that we have almost completely abandoned commercial borrowing. Instead, we have restructured our debt, effectively committing a technical default,”
– Mr. Penzin said.
The impact of debt on social spending and the situation for citizens
Pengjin also emphasized that the debt issue is closely related to the financing of social spending.
“We are now living in a time of war, and this is a unique situation. If there was no war, no one would give us such funds. That is why debts are now used to finance social expenditures, and if there is no money, it will affect social standards,” he said,
– he said.
In particular, Pendzin pointed to the problem of freezing social standards, which arises due to the lack of funds to finance them. He noted that it is important for ordinary citizens to understand that without debts there will be no possibility to finance social programs, and this can lead to significant difficulties in the social sphere.
“Then there is the question of what to do with social spending after the war is over. When active hostilities stop, we will still have to allocate significant funds for defense. But what to do with social payments is another complicated issue,”
– Penzin summarized.
In general, the economist urged citizens to pay attention to the fact that public debt is not just an economic issue, but also an issue that affects their daily lives through the financing of social programs.
Thus, reducing the cost and extending the maturity of Ukraine’s public debt is an important economic trend that allows reducing the financial burden on the country’s budget. However, although the cost of debt has become cheaper, the increase in its volume and dependence on external loans may create certain problems in the future. The issue of financing social programs is particularly important, as the state will have to allocate significant funds not only for recovery from the war, but also to maintain social standards, which are already experiencing a freeze due to lack of funding.
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