Economy

Ukraine’s growing debt: what’s behind the $169 billion mark

As of the end of February 2025, Ukraine’s public and publicly guaranteed debt reached $169.3 billion. This is 2.5% more than at the beginning of the year, Komersant ukrainskyi reports, citing the Ministry of Finance of Ukraine.

The debt growth has occurred in the context of the ongoing war, the need to finance defense, restore destroyed infrastructure and provide social programs.

Currently, financial support from international partners remains the key source of financing the state budget deficit, while domestic resources, including tax revenues, have not yet fully recovered.

Why has the public debt increased?

1. Financing of defense and security. The bulk of the borrowed funds is used for the country’s defense. Expenditures on military equipment, weapons, logistics, and army supplies account for a significant share of the state budget.

Ukraine receives loans and grants from international partners, including the European Union, the United States, and the IMF.

2. Restoration of infrastructure. Significant funds are spent to restore damaged cities, roads, bridges, and energy infrastructure.

Part of the funding goes to energy security, especially after attacks on critical infrastructure.

3. Social support. The government continues to pay pensions, social benefits and financial support to internally displaced persons.

In addition, programs to support small and medium-sized businesses are being funded to help restore economic activity.

4. Servicing of previous debts. Part of the new debt is used to repay old liabilities and pay interest.

Ukraine is negotiating debt restructuring to ease its financial burden.

Read also: Ukraine’s public debt: why it has become cheaper and how it will affect the economy

Structure of Ukraine’s public debt

Ukraine’s public debt is divided into two main parts:

External debt – 60%. It is formed by loans from international financial organizations: IMF, World Bank, EBRD. Much of the external debt is denominated in US dollars and euros, which increases currency risks. Ukraine also receives funding in the form of grants and concessional loans.

Domestic debt is 40%. This is mainly domestic government bonds (OVDPs), which are placed among Ukrainian banks, investors, and citizens. Military bonds issued by the government are also an important source of funds.

Risks associated with public debt

1. Rising debt service costs. Increased debt obligations mean higher interest payments. This puts additional pressure on the budget.

2. Currency risks. Most of the external debt is denominated in foreign currency. In the event of a hryvnia devaluation, the debt burden could increase significantly.

3. Dependence on international assistance. Ukraine remains dependent on continued financial support. Any reduction in this assistance could lead to a budget deficit.

4. Restrictions on economic growth. The high level of debt limits the ability to finance social programs and investments in economic development.

Read also: The Ministry of Finance told how much Ukraine’s debt increased in January

What are the possible solutions to the problem for Ukraine?

• Debt restructuring. Ukraine is already in talks with international creditors to extend preferential terms and defer payments.
• Attracting grants instead of loans. Increasing the share of non-repayable aid will reduce the debt burden.
• Increase economic activity. Restoring enterprises, supporting small businesses, and promoting exports will help increase tax revenues.
• Broadening the tax base. Reform of the tax system and the fight against tax evasion can provide additional budget revenues.

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