ANALYSIS OF FINANCIAL STABILITY THROUGH THE LENS OF UKRAINE’S DOMESTIC DEBT POLICY

Abstract

Introduction. The article provides a comprehensive analysis of Ukraine’s financial stability during the full-scale war through the lens of the country’s domestic debt policy. The focus is placed on domestic government bonds (OVDP) as the main instrument for financing the budget deficit caused by a sharp increase in defense spending and a simultaneous decline in revenues between 2022 and 2024. The risks associated with the extensive use of short- and medium-term OVDP are highlighted, particularly the formation of a debt spiral that constrains funding opportunities for economic development. The study proposes directions for improving the state’s debt strategy through the issuance of long-term securities, broadening the investor base, and enhancing the efficiency of tax administration to strengthen financial resilience. The issue of Ukraine’s financial stability has gained particular urgency due to the full-scale war and unprecedented pressure on public finances. A significant rise in defense expenditures coupled with declining budget revenues has sharply increased the budget deficit and intensified domestic borrowing. OVDP have become the main tool for raising funds, but this policy creates risks of debt vulnerability. The purpose of the article is to conduct an in-depth analysis of Ukraine’s financial stability in the context of domestic debt policy and to assess the effectiveness of OVDP as an instrument for financing the budget deficit. Methods. The study is based on the analysis of financial and statistical data regarding the structure of public debt, volumes of domestic borrowing, and their impact on financial stability. A comparative analysis with international practices is applied, taking into account the modern challenges posed by the war. Results. The research reveals that domestic government borrowing has grown significantly, but most of the raised funds have been used to service existing debt. The main holders of OVDP are domestic banks and the National Bank of Ukraine, while the share of non-residents has declined considerably. This indicates a high dependence of public finances on the domestic market and the amplification of debt sustainability risks. Recommendations include extending the maturity of bonds, encouraging broader participation of individuals and businesses, and improving tax administration efficiency to mitigate risks. Conclusions. Ukraine’s domestic debt policy plays a key role in financing defense needs; however, to maintain financial stability, it is necessary to shift toward long-term strategies and adopt comprehensive approaches to debt management. Implementing structural changes in borrowing policies and enhancing fiscal policy efficiency are critical to ensuring the country’s long-term financial resilience.