Budget deficits and public debt of Ukraine under the shocks of pandemic and military aggression

Abstract

Introduction. The extraordinary conditions for the government’s functioning during the pandemic and warfare provoked a strong respose of the state institutions, as a result of which the size of budget deficit in Ukraine over 2022-2023 exceeded a lot the historical values and averages for the different country groups as most indicators of the debt burden worsened, generating the danger of debt unsustainability. Problem Statement. Identification of the nature of Ukraine’s fiscal policy through the lens of past and contemporary global phenomenon, identification of macro-financial factors impacting he state of debt sustainability under the extreme conditions, analysis of debt burden indicators and fiscal risks in order to outline the ways of solving the fiscal and debt problems in Ukraine. Purpose. To reveal the global patterns and national features of the expansive fiscal policy conduct and public debt accumulation in emergency conditions which are connected with the pandemic and military actions , to investigate the factors of Ukrainian government’s solvency deterioration and to assess the relevant risks, as well as to define the tools of public debt management in the medium run. Methods. General scientific and special methods are applied: analysis and synthesis, description and comparison, historical method, method of theoretical generalization and abstract-logical method. Results. It has been found that the impact of operations of the general government on aggregate demand in Ukraine was positive in 2020, 2021 and 2022, and this situation was in sharp contrast to the period of 2015-2019, when fiscal policy produced restrictive effects. Fiscal policy in Ukraine was of pro-cyclical nature in 2014-2018 and turned to countercyclical stance only in 2020 with sustaining this course until 2023. It has been proven that in Ukraine the debt sustainability criteria are violated across major part of debt burden indicators , that signal the high solvency risks and liquidity risks for general government; moreover, relative to 2019, the dynamics of most indicators in 2020 and 2022-2023 were unfavorable. Computations conducted indicate that refinancing risks, foreign exchange and interest rate risks inherent to the structure of public debt have increased significantly with the start of hostilities in Ukraine. Conclusions. In the post-war period, contraction of budget deficit and well-balanced restructuring of the external public debt should become the main levers for debt reduction. Effective management of public debt with consideration of existing risks are important for securing macro-financial stability and active government’s involvement in the post-war reconstruction of the country.