For a small country, Ukraine holds a lot of keys
Four days after the end of the 2022 winter Olympics, Russia's president opted to invade a neighboring European country – Ukraine. Since that fateful decision in February 2022, Ukraine's public debt has ballooned in size, posing enormous challenges not only for Ukraine, but the “long” European peace.
Pre-War Debt
Prior to the conflict, Ukraine maintained a relatively healthy debt-to-GDP ratio. In 2021, this figure stood at approximately 49%, reflecting a period of good fiscal restraint and economic growth. The government's debt management strategies had successfully reduced the debt burden from 81% of GDP in 2016 to below 50% by 2021.
Surge in Public Debt
The onset of war necessitated just a little bit of debt – ok, an enormous amount of debt to finance defense and humanitarian assistance. This led to a sharp rise in public debt. By the end of 2024, Ukraine's national debt had surged to nearly $160 billion, up from just under $100 billion before the invasion—a 60% increase. This escalation was fueled by extensive borrowing from international partners and financial institutions to support the war effort and stabilize the economy.
Debt-to-GDP Ratio
The debt-to-GDP ratio has mirrored this upward trajectory. In 2023, the ratio reached an all-time high of 84.4%, a significant jump from the pre-war average of 46.2%. Projections indicate that this ratio could exceed 100% by 2025, with estimates suggesting a rise to 107% before a potential slight decrease to 103% in 2027. The forecasts are, of course, highly speculative given the tense stage of the war right now.
Composition of Debt
The structure of Ukraine's debt has also evolved during the war. The proportion of external debt has increased, with significant amounts owed to international entities such as the European Union, the World Bank, and the International Monetary Fund (IMF). As of early 2025, external public debt distribution included just under $50 billion owed to the EU, $20 billion to the World Bank, and $18 billion to the IMF. Additionally, the share of foreign currency-denominated debt rose from 65.1% to 75.3%, and external debt's share increased from 61% to 72.7%. This shift reflects Ukraine's reliance on international assistance to finance its wartime spending.
International Support and Debt Sustainability
International financial support has been pivotal in sustaining Ukraine's economy. The IMF, for instance, completed a review in March 2025, resulting in a $400 million disbursement aimed at providing budgetary support. Despite these inflows, concerns about debt sustainability persist. The accumulation of debt, even on concessional terms, raises questions about Ukraine's future repayment capacity and the potential need for debt restructuring once the conflict subsides.
Outlook and Challenges
Looking ahead, Ukraine faces the dual challenge of managing its burgeoning debt while financing reconstruction efforts. The World Bank estimates the cost of rebuilding Ukraine at over $500 billion, highlighting the immense financial requirements post-war. Other estimates put the rebuilt at well over $1 trillion. Furthermore, the prospect of a debt-to-GDP ratio exceeding 100% underscores the urgency of implementing strategies to stimulate economic growth, attract investment, and ensure fiscal sustainability.
What Does This Mean for Gold and Other Precious Metals?
Given the situation, what does it mean for gold and other precious metals? Well, so far, the Ukraine war has been anything but bad for holders of the world’s most well-known precious metal. Since February 23, 2024, the price of gold is up over 60%. Continuied turmoil in Ukraine will likely only push its price higher.
Summing Up
Overall, the war has profoundly impacted Ukraine's public debt, with significant increases in both absolute terms and relative to GDP. While international support remains crucial, addressing the long-term implications of this debt accumulation will be essential for Ukraine's economic recovery and stability in the post-war era.
