№ 11/2023

Fìnansi Ukr. 2023 (11): 116–128https://doi.org/10.33763/finukr2023.11.116

In memory of Viktor Fedosov

SHAPRAN Natalia ¹, HAPONIUK Mykola ², SHAPRAN Vitaliy ³

¹Kyiv National Economic University named after Vadym Hetman
OrcID ID : https://orcid.org/0000-0002-4080-0833
²Kyiv National Economic University named after Vadym Hetman
OrcID ID : https://orcid.org/0000-0002-1541-0307
³Public Organization “The Ukrainian society of financial analysts”
OrcID ID : https://orcid.org/0000-0002-1540-6834

The role of the domestic government bonds market in the public finance system of Ukraine

Introduction. With the onset of Russia’s war against Ukraine in 2022, the question of the state's proactive access to financing military and war-related expenditures became critical. Internal and external public debt emerged as the primary means of funding these urgent needs, with over 99% of the domestic public debt being sourced from domestic government bonds. The effectiveness of the government's borrowing program through domestic government bonds and its capacity to mobilize substantial funds for emergencies is pivotal for national security.
Problem Statement. While the nature and functionality of public debt and the domestic government bonds market are well-studied in an academic environment, the mechanisms governing the interaction between fiscal and monetary authorities in this market remain underexplored and unregulated.
Purpose. This study aims to determine the role of the domestic government bonds market within the framework of public finance, particularly in the management of domestic public debt. It also seeks to develop recommendations for improving such management.
Methods. The research employed a combination of empirical methods, including experiment, observation, and description, alongside theoretical methods such as analysis, synthesis, generalisation, induction, deduction, explanation, and classification, etc.
Results. The study underscores the necessity of broadening our understanding of the domestic government bonds market, which, it turns out, extends beyond its fiscal and regulatory roles. The modern domestic government bonds market in Ukraine encompasses the functionality of reserve assets, savings instruments; a potential source for economic development financing; management of the currency, interest and inflationary components of the state debt; and management of parity between external and internal public debt. We conducted an analysis of the government bonds within the National Bank of Ukraine's (NBU) portfolio and provided recommendations regarding the advisability of reprofiling government bonds within the NBU's holdings.
Conclusions. Domestic government bonds represent the primary instrument for raising and servicing domestic public debt. In general, the portfolio of domestic government bonds in circulation maintains an acceptable duration and allows the public debt manager to plan its servicing without a major concentration of principal debt payments in the near future. As of August 31, 2023, state-owned banks and the NBU collectively controlled approximately 76% of the total government bond debt. Notably, the NBU received excessive income from government bonds featuring a floating yield, indicating the need to restructure the NBU's government bond holdings, coupled with a further liberalization of the NBU's involvement in the secondary domestic government bonds market.

Keywords:public debt, public finance, government borrowing, banks, domestic government bonds market

JEL: E44, E58, H60, H63, H69

Shapran N. . The role of the domestic government bonds market in the public finance system of Ukraine / N. Shapran, M. . Haponiuk, V. Shapran // Фінанси України. - 2023. - № 11. - C. 116-128.

Article original in Ukrainian (pp. 116 - 128)

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