Ministry of Finance plans to completely abandon foreign currency government bonds

The Ministry of Finance plans to gradually reduce the issuance of domestic government bonds in foreign currency and completely stop this practice in the medium term. Instead, the ministry wants to increase the share of hryvnia borrowings and strengthen the role of the domestic market in financing the state.

This approach is provided for by the Medium-Term Government Debt Management Strategy for 2027-2029, approved by the government.

The Ministry of Finance explains the change in approach by the need to reduce the currency risk of government debt. As of the end of 2025, 79.2% of government debt was denominated in foreign currency, which is largely due to large-scale external concessional financing during the war.

At the same time, directly in the structure of domestic debt, the share of liabilities in foreign currency is much smaller - 7.2%. The Ministry of Finance plans to further increase the share of debt in hryvnia through the development of the domestic government securities market.

"The Ministry of Finance will gradually minimize the placement of government bonds denominated in foreign currency, with the aim of completely stopping this practice in the medium term", - the strategy says.

The ministry notes that increasing the share of hryvnia debt will allow restraining the growth of debt servicing costs in the event of national currency devaluation.

Share of euro-denominated debt increased

The Ministry of Finance calls the increase in euro-denominated debt another source of currency risk. At the end of 2025, the European currency accounted for 45% of total government debt, compared to 33% at the beginning of the year.

Because of this, the volume of future payments in euros will also grow. The Ministry of Finance plans to consider this factor when making new borrowings: euro funds can primarily be used to refinance existing euro debt and build liquidity for its servicing.

In addition, the ministry intends to analyze the possibility of converting part of loans raised in other currencies. Under favorable market conditions, the Ministry of Finance also allows changing the currency and type of interest rate under individual loan agreements.

Ministry of Finance may restructure part of the debt to the NBU

The strategy also provides for the possibility of a separate operation with government bonds held by the National Bank. The Ministry of Finance allows exchanging them for new government bonds on terms agreed with the NBU.

In particular, the terms of bonds with payments linked to inflation and the NBU discount rate may be revised. This step will be considered if it allows reducing future interest costs and more evenly distributing payments after 2035.

At the same time, the Ministry of Finance plans to maintain the principle of refusing direct financing of the budget deficit by the National Bank through the purchase of government bonds.

There will be fewer short-term government bonds

Another direction will be the lengthening of domestic borrowing maturities. When forming the auction calendar, the Ministry of Finance plans to avoid issuing short-term bonds with a maturity of up to one year and regularly offer securities for two to four years.

At the same time, the issuance of benchmark government bonds, which banks can use to cover up to 60% of required reserves, will continue. This should support bank demand for government bonds and ensure non-inflationary financing of the budget.

The Ministry of Finance also wants to expand the circle of government bond buyers. The share of non-residents among government bond holders decreased in 2025 to 0.8% from 1.2% a year earlier, but in the future the state expects the return of foreign investors as currency restrictions are eased.

In parallel, the role of retail investors is growing. At the end of 2025, retail investors held about 112 billion hryvnias of government bonds, or 5.7% of their outstanding volume, against 4.2% a year earlier.

Domestic borrowings will play a greater role

In 2026-2029, the Ministry of Finance expects to attract about 420-566 billion hryvnias annually on the domestic market. In 2026-2028, about 80% of the total budget financing needs should still be provided by external borrowings, but by 2029 their share should decrease to 67%.

Thus, the domestic market should gradually take on a larger part of state financing, although external concessional assistance from the EU, international financial organizations and partner countries will remain the main source of covering the budget deficit in the coming years.

Based on materials: Ministry of Finance of Ukraine, Medium-Term Government Debt Management Strategy