OPINION: Ukrainian Debt Against the Background of the War

It all started with invincible Russia and Ukraine as a victim. Russia is invincible, it cannot but win, they said. Then later, Russia cannot lose and Ukraine cannot win, they claimed.

And now we hear other voices shouting that even if Ukraine wins, it will lose, because it will be caught forever in a debt trap. Ukraine’s debt is almost equal to that of the United States. And Russian propagandists love talking about how huge it is.

The Russian Nazis are currently in the stage of acceptance on the battlefield. But what about the Ukrainian debt? After all, the truth is that Ukraine got through the year 2022 only thanks to the collective assistance of the West – not only military, but also financial. According to the myths and legends of Russian propaganda, this will lead to debts, for which land, grain and virgins will be taken out of Ukraine.

Now the Ukrainian state spends all the money it earns on military needs. Sometimes there are not enough funds and it is necessary to print them, in particular at the National Bank. The budget deficit is colossal. In the first months of the war, it reached $5 billion per month, while in the second half of the year, amid some recovery of the economy and the return of a number of taxes, it stabilized at the level of $4 billion. This is a lot for an economy whose GDP reached $200 billion before the war, especially given the fact that real GDP fell by 30% this year.

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And the debt is growing. But not at such a pace that should make us tear our hair out. First, most of the aid comes in the form of grants from the U.S. Not loans, but grants. We receive loans from the EU. But it is necessary to understand that most often this is almost free money, as the loan rate is purely symbolic, for a long time – 25 to 30 years. And inflation during this time will wipe out more than half of this amount. The same situation will continue next year.

As a result, the debt burden on Ukraine will increase, but not to a critical level. This is due to the fact that before the war Ukraine pursued a competent macroeconomic policy under the guidance of the IMF, gradually reducing the level of the debt burden. Consequently, by the end of this nightmarish year of 2022, the debt-to-GDP ratio will fall to around 85%. This is a figure that Italy, for example, can only envy. And next year, this indicator is unlikely to exceed 100% of GDP.

That’s a lot. But remember, this is a preferential debt, which does not require significant costs for servicing. And part of this debt includes government domestic loan bonds bought by the National Bank, thus the state will pay itself. The market debt, which is always expensive for Ukraine, is currently frozen. Moreover, its share in the total debt load is rapidly decreasing, because the Ministry of Finance only redeems market bonds on the domestic market, without attracting any funds at market rates.

As a result, Ukraine will emerge from this war with a record high, but not critical level of debt. In addition, we have a successful experience in reducing the debt burden. In 2016, after the first stage of Russian aggression, we had a debt-to-GDP ratio of 80%, and in a few years we reduced this figure to 60%. Not to mention the fact that after the war ends, Ukraine will get a modern Marshall Plan, which will ensure an anticipatory growth of GDP, making the debt burden even less burdensome.

Thus, it’s not worth exaggerating the problem of Ukrainian debt because of the war.

I would not like to upset the Russian propagandists… On second thought, no, we shouldn’t be too modest. I really do want to upset them, because it makes me very happy. But if harping on about a huge Ukrainian debt will allow them to accept their defeat more easily, then so be it.