Transformation of Ukraine's budgetary and debt policy under martial law and in the context of post-war recovery

Abstract

Purpose. The study aims to identify the patterns of transformation of Ukraine's budgetary and debt policy under the impact of full-scale armed aggression, to assess the current state of the debt burden, and to substantiate the strategic priorities of public and municipal debt management in the context of post-war recovery, taking into account the principles of sustainable development and European integration requirements.

Methods. The study employs a set of scientific research methods: statistical analysis — to examine the dynamics of key fiscal and debt indicators for 2021–2026; structural-functional analysis — to reveal institutional changes in the debt management system; comparative analysis — to evaluate EU experience and the recommendations of international financial organisations; and legal-normative analysis — to investigate changes in the legislative regulation of debt limits.

Results. It is established that the full-scale war has caused a systemic transformation of public finances: the budget deficit reached 20% of GDP in 2022, the share of defence expenditures reached 52.3% in 2023, public debt exceeded UAH 9 trillion (98.4% of GDP) by the end of 2025, and is projected by the IMF to peak at 122.6% of GDP in 2026. It is found that the suspension of the debt ceiling (60% of GDP) under the Budget Code, in effect since 2021, weakens institutional control over fiscal risks. The effectiveness of crisis debt management instruments is demonstrated: the Eurobond restructuring in 2024 secured a nominal debt reduction of 37% (approximately USD 9 billion), while the GDP warrant restructuring in December 2025 enabled the avoidance of potential payments of USD 6–20 billion through 2041. It is determined that the local dimension of debt policy is characterised by legislative asymmetry: over 1,060 rural and urban-type settlement communities are denied the right to borrow, which constrains balanced territorial development. The potential of green bonds and ESG-oriented debt instruments for attracting post-war recovery financing at lower interest rates is substantiated.

Conclusions. The research findings indicate the need to implement a comprehensive debt sustainability strategy encompassing: the gradual restoration of fiscal rules and a transition to medium-term budgeting; diversification of borrowing sources through the development of the domestic government securities market; the priority allocation of borrowed funds towards investment purposes via development budgets; the equalisation of borrowing rights for local communities; and the integration of sustainable development principles into the debt strategy in accordance with SDG targets and European integration requirements.