On June 17, the London Stock Exchange reported that the Ministry of Finance of Ukraine had failed in its attempt to negotiate with creditors to write off 25% to 60% of its government bond debt. The Ministry of Finance offered private creditors two options for restructuring Eurobonds. But it failed to reach an agreement with them.

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For developing countries, the limit of the negative impact of public debt on the economy is 65-70% of GDP. In Ukraine, this ratio has already exceeded 85%.

The latest official information on the state of Ukraine's public debt from the Ministry of Finance is dated end of April. At that time, Ukraine's public and publicly guaranteed debt amounted to $151.52 billion.

At the end of May, the information on Ukraine's public and publicly guaranteed debt, as is customary on a monthly basis, did not appear on the Ministry of Finance's website.

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In response to LIGA.net's inquiry about the national debt, the threats it poses, and options for getting out of it, the Ministry of Finance replied that there is currently an embargo on any communication from lawyers on this issue. Until a certain decision on restructuring is made.

In early June, Finance Minister Sergii Marchenko refused to elaborate on the topic of public debts in front of members of the Verkhovna Rada. He only said that negotiations with creditors on restructuring were underway.

"Wait for the news. These negotiations will become public in the near future. And we will be able to talk to you about them separately," Marchenko said at the time.

Public debt is the total amount of debt obligations of the state to repay received and outstanding loans.

Since the beginning of Russia's full-scale invasion of its territory, Ukraine has been plunging into debt quite seriously. At the end of 2021, Ukraine's public and guaranteed debt amounted to $97.96 billion. By the end of 2022, the amount exceeded $111 billion, and in 2023, more than $145 billion.

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Currently, the country's expenditures far exceed its revenues. Each month, this is approximately $350 million more to the total amount of public and guaranteed public debt.

In addition, Ukraine's government loans are not used to develop the economy, such as building factories, infrastructure, and so on, but to continue military operations. And this, as Natalia Boyko, CO-CEO and founder of SpiceProp, noted in a comment to LIGA.net, means that after the war ends, the country will have less economic capacity to pay off the growing national debt than when it made these borrowings.

"Moreover, the tax base (citizens and businesses), the main source of government revenue, will shrink because of the war. The longer the fighting goes on, the worse the state finances are," says Natalia Boyko.

In the pre-war period, the average ratio of public debt to GDP in Ukraine was about 46%. In 2022, the ratio was 78.4%. At the end of last year, the ratio was 84.4%.

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If it is exceeded, economic growth loses two percentage points per year. If the ratio rises above 77-80%, the country faces serious economic difficulties. Above 90%, the GDP growth rate is halved. Then it becomes almost impossible to finance the national debt.

"With this approach, the value of 84.4% in 2023 in Ukraine indicates a rapid approach to a debt crisis. This is an increase of six percentage points over the year. If this continues, it will exceed 90% by the end of 2024. This is almost the pre-crisis levels of Greece. If the global economy experiences a recession in 2024-2025, the Greek scenario will become inevitable for Ukraine," Natalia Boyko argues.

Greece has long lived with a public debt-to-GDP ratio of about 100%. When the global crisis of 2008-2009 hit, the Greek government simply did not have the funds to finance the state. And no one wanted to borrow at a reasonable rate because of the high risks of default.

In 2010-2015, Greece applied to the EU for three aid packages. The country had to go through a very difficult period. At the same time, the value of public debt to GDP never returned to the pre-crisis level. In 2023, it amounted to 161%.

The fact that the increase in public debt comes from an external source is also destructive for the Ukrainian economy. Currently, 71.52% of the total public debt is external borrowing. On the other hand, in the current situation, Ukraine has no choice.

However, external borrowing postpones negative economic consequences for the future.

While the government does not have to expand the money supply to finance expenditures, devalue the national currency, cut wages, inflate inflation, etc., it may have to do so in the future if the external public debt is not waived. It could be a heavy burden even for future generations. 

On June 1, the Ministry of Finance forecasted the amount of future public debt payments until 2050 with a detailed annual schedule. In 2024, Ukraine will have to pay UAH 1.02 trillion ($25.2 billion) in public debt repayments.

The state budget revenues for 2024 are planned at UAH 1.8 trillion ($44.4 billion).

In 2025 – UAH 889 billion ($21.9 billion). In 2026 – UAH 635 billion ($15.7 billion). In 2027 – UAH 549 billion ($13.5 billion). In 2028 – UAH 459 billion ($11.3 billion), in 2029 – UAH 432 billion ($10.7 billion), in 2030 – UAH 411 billion ($10.1 billion).

For the period of 2031-2049, UAH 4.086 trillion ($100.8 billion) is allocated. The smallest amount is for 2049 at UAH 87.61 billion ($2.2 billion).

However, if we compare this forecast with the one published by the Ministry of Finance on May 1, we see that the new forecast shows an increase in the amount to be paid. Back then, the amount of payments projected by the Ministry was about UAH 870 billion ($21.5 billion) in 2025. In 2026 – 621 billion ($15.3 billion). In 2027 – UAH 536 billion ($13.2 billion). In 2028 – 457 billion ($11.3 billion). In 2029 – UAH 430 billion ($10.6 billion).

Obviously, this is due to the depreciation of the hryvnia. On the last day of April, the official hryvnia exchange rate set by the NBU was 39.6688 UAH/USD. On the last day of May, it was 40.4832 UAH/USD.

The amount of state and state-guaranteed debt is calculated in monetary terms as the outstanding nominal value of debt obligations in the currency of the loan.

The state and state-guaranteed debt is calculated in hryvnias and dollars at the NBU exchange rate as of the last day of the reporting period.

The structural shortage of foreign currency is caused by the country's high trade deficit. Meanwhile, foreign debts must be repaid in dollars and euros.

"In the end, it’s a spiral. Due to the constant weakening of the hryvnia, the amount of public debt is growing. To service it, we need to borrow again and at the same time cut public spending. The standard of living is falling into the abyss, and the country is on the trajectory of an inevitable debt crisis," says Natalia Boyko.

In order to avoid a negative scenario, Natalia Boyko believes that two conditions must be met. The first and foremost is the end of the war. Then government spending can be reduced by tens of billions of dollars. The second prerequisite is the forgiveness of Ukraine's foreign debts.

There are many options for such "forgiveness". These include a phased write-off, partial write-off, deferral of interest or principal payments, lower interest rates, etc.