Converting to hryvnia and extension of timelines: What new strategy of public debt management promises to Ukrainians

Author

Valery Moiseev

Direct public debt of Ukraine that amounted to 60.8% of GDP at the end of 2020 is expected to reach 56.9% of GDP by the end of 2021. In 2022 it will be reduced to 50.8%, in 2023—to 48.55% , and by 2024—up to 47%. At the same time, the share of public debt in the national currency should grow from the current 41% to 51% at the end of 2024.

This is stated in the medium-term strategy for the public debt management until 2024 approved by the Cabinet of Ministers on December 9. presents its content and has made its own "notes in the margins".

Content of public debt management strategy in brief

The strategy provides for an increase in the weighted average maturity of public debt from 6.4 years to 7 years by the end of 2024. At the same time, the share of long-term concessional financing from multilateral institutions and foreign countries for the implementation of investment projects in the total public debt will increase from 6.3% this year to 7% in 2024.

The strategy is developed taking into account the figures stipulated by the law on the state budget for 2021 and the budget declaration for 2022-2024.

It is noted that as a result of the implementation of the previous strategy (for 2019-2022), the share of public debt in the national currency increased (from 33.4% in 2018 to 38.2% in 2020), the structure of public debt by maturity has improved and Ukraine's international ratings have increased.

According to the Minister of Finance Serhiy Marchenko, the main risks for implementing the new strategy are refinancing and currency risks. To minimize the risk of refinancing, the Ministry of Finance plans to develop the financial market. The Ministry also intends to introduce currency hedging instruments.

Notes in the margins of Ukraine's public debt management strategy

The beacons outlined by the government: reducing the share of public debt to GDP, converting debt to national currency, and increasing borrowing terms are in line with the best world practice and recommendations of international financial organizations (IMF, World Bank, etc.). However, wanting alone (even a very large one) and a beautiful presentation are not enough for this. What is needed is a strong will to consistently implement the action plan outlined (in its most general form) in the strategy.

The measures of this plan include:

developing the domestic market for government securities (GS);
issuing government bonds in different currencies on international markets, studying the world experience of using ESG instruments;
involving international investors to the domestic GS market;
expanding cooperation with multilateral institutions and governments to obtain concessional financing;
the work of the government to improve the credit rating of Ukraine.

Unfortunately. there is often no such consistency in the actions of the Ukrainian authorities. For example, the strategy states that in order to reduce the risks of its failure, the state, among other things, should strive to reduce the share of state-owned banks in the market. But in the bill on the "economic passport of a Ukrainian" that is actively advertised at the moment it is written that the accumulated funds should be placed only in state banks. According to the logic of such a "passport", funds should be accumulated and stored in state banks for decades, therefore such banks will need to exist for a long time.