Public debt: Ukraine has reached a dangerous point
Success in the economy for a person, business, or country depends on many factors. One of the most important is the ability to manage debt.
Debt is an objectively present phenomenon. It is not always possible to settle a debt between a seller and a buyer of goods/services instantly. There are different payment options. If a person/business lacks money/resources, they go to a bank for a loan. A debt is formed. This is the alphabet of economic relations.
Competent, professional debt management significantly increases the chances of commercial success. Failure to plan, evaluate your financial flows and reserves in view of your obligations to creditors is a threat of defaults and bankruptcies, a risk of losing face and reputation.
Poor discipline and negligence in relation to debt are a guarantee of very high interest rates on loans, a growing investment deficit, and worsening terms of trade for domestic producers. As a result, economic growth will inevitably slow down, incomes will decline, and living standards will fall.
One is when an individual or private business takes out a loan. In this case, the lender assesses the risks (insurance, collateral, assessment of income, assets, savings, etc.) It is quite another thing when the government borrows, i.e., appointed officials for projects/programs that are not always even approved by the parliament.
Government loans fall into the category of "other people's money spent on other people's projects." That is, the incentives to save and maximize the benefits received by managers of other people's money are either weak or non-existent. Moreover, if there is money to be made in credit intermediation – directly or indirectly – officials have a real appetite for debt.
When a developing country with a low or middle income has a public debt of up to 30% of GDP, it does not pose a threat if it has consistently high economic growth, a balanced state budget and constant monitoring of the quality of public spending.
Of course, it is better not to allow the government to live and work in debt, but sometimes force majeure happens. If the public debt exceeds 60% of GDP, and 3+% of GDP needs to be spent on its servicing, this is a loud signal of danger.
Even before the large-scale Russian invasion, Ukraine had problems with its fiscal policy. The political and economic elites had not developed a culture of living according to one's means. There were no mechanisms in place to control public spending and assess its quality. There were no professional calculations and assessments of the benefits of government loan programs. Therefore, since February 2022, the floodgates for a sharp increase in public debt have been wide open .
They lent us money, understanding our extremely difficult situation and expressing support for our country in the fight against the Nazi aggressor. Of course, the standard mechanisms for managing credit and country risks were looked down upon. The war years were underway. The debt was growing, and the Ukrainian government was in no hurry to demonstrate fiscal responsibility.
The principle was "they give, we must take: later we will find out the details and think about how to repay the loans." From the beginning of 2022 to September 30, 2025, Ukraine's external public debt increased by about $94 billion. In 2022, it grew by $13.49 billion, in 2023 by $33.87 billion, and in 2024 by $20.74 billion. In January-September 2025, Ukraine's public debt added another $28.15 billion. Taking into account the announced lending volumes by the end of 2025, the increase in public debt in 2025 could reach a record $44.24 billion .
That is, from the beginning of 2022, the public debt in dollar terms will grow by about $112.34 billion, or 2.15 times. By the end of 2025, Ukraine may cross a very dangerous threshold of 100% of GDP. The IMF has forecast the country's GDP in 2025 at $209.7 billion, and the public debt threatens to reach $210.3 billion. Such a debt cannot be repaid in the current state of the economy, production, investment and exports.
There are no miracles. Default is just a matter of technology and the goodwill of our creditors. The main thing is what happens afterwards.
It is worth noting that while the share of external public debt amounted to 48.7% of the total at the beginning of 2022, it is projected to exceed 74% by 2025. One thing is when the hryvnia exchange rate is kept manually at ₴42 per $1 with huge imbalances in the trade and balance of payments, and another is when the hryvnia exchange rate reflects market realities at ₴50 per $1.
Then the hryvnia equivalent of the national debt by 2025 will increase after the hryvnia exchange rate is brought to market level from ~₴8.8 trillion to ~₴10.5 trillion. It is easy to imagine the increase in budget expenditures on servicing such debt.
In such a situation, a critical factor in fiscal and budgetary sustainability is trust in the country's leadership and key government figures. I would like to hope that the EU/US/G7 will not leave Ukraine alone with Nazi Russia, that they will support us. Especially since they, in fact, authorized and supported such macroeconomic policy of the Ukrainian government, became its co-authors, and thus, complicit in the deep debt crisis.
However, the crisis of confidence will have to be overcome in unconventional, original ways. One of them is to accept managerial and expert assistance from our main donors in the form of... the Minister of Finance and the Head of the National Bank. Let them show us a master class, teach our people how to conduct high-quality macroeconomic policy in general and budgetary policy in particular during the war and huge debt pressure.
Inviting foreign professionals to join the Ukrainian government is, among other things, a measure to build trust in the Ukrainian authorities, improve the country's image, and mobilize resources during a critical period of the war of attrition. It will be easier for a Swiss or Danish minister to say "no" to all those Ukrainian lobbyists who have kept public spending at ~70% of GDP for four years of war.
I'm afraid that today there is no other way to neutralize the fifth Marxist column in Ukraine, to cut off the newly discovered budget schematism, and to instill the norms and standards of high-quality macroeconomic policy in the country.
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