Ukraine's updated state debt management strategy keeps focus on attracting retail investors

MOSCOW. Dec 29 (Interfax) - Development of the domestic debt market is key to reducing Ukraine's financial vulnerability, and efforts to draw retail investors into the domestic government bond market will continue, Ukrainian media reported citing the Medium-Term State Debt Management Strategy for 2026-2028.

"As of June 30, 2025, 5.1% of the outstanding domestic bonds were owned by retail investors, which is significantly higher compared to 3.5% a year earlier and only 2.3% as of 2021-end. The combination of growth and a still low share highlights the segment's long potential for further expansion," media outlets said citing the document, which was approved by the government on December 24 and is available for viewing on the Finance Ministry's website.

Despite the crisis, Ukraine has maintained the functioning of the domestic debt market and has been able to fully rollover its domestic debt maturities in the amount of UAH 659 billion between 2022 and Q2 2025, given the gross receipt of financing in the amount of UAH 2.07 trillion.

Retail investors, who held domestic government bonds worth UAH 110.3 billion of the total of UAH 1.993 trillion as of December 26, 2025, not only provide fresh liquidity but also typically roll over their maturing holdings, thus maintaining market stability.

"By contrast, corporate investors significantly increased their bond holdings during the crisis, largely due to excess liquidity accumulated under capital controls. Once these controls are lifted, corporates may rebalance their portfolios toward alternative assets, creating refinancing risks for this portion of the investor base," the strategy said.

According to data from the National Bank of Ukraine, legal entities held domestic government bonds worth UAH 201.7 billion as of December 26, 2025.

Meanwhile, the volume of domestic government bonds held by nonresidents has now dropped to UAH 17.7 billion. For its part, the Finance Ministry, which is the author of the strategy, believes that lifting forex controls on existing domestic government bonds will help secure new foreign investor inflows and broaden the investor base in the mid-term.

"Attraction of foreign investors remains complicated due to FX regulations, but it will be a priority after their liberalization of FX regulations," it said.

The shift in the currency composition of Ukraine's state debt toward the euro, now the dominant currency for short- and mid-term financing, makes it particularly important to consider hedging part of the euro exposure.

"To manage this risk efficiently, the domestic euro FX market must be further developed to enable cost-effective hedging instruments," the strategy said.

Data from the Finance Ministry show that the share of the euro in Ukraine's state debt increased to 44.7% as of late November 2025 from 14% in 2021, while the share of the U.S. dollar dropped from 35% to 21.6%, and the share of the hryvnia fell from 40% to 21.5%.

The strategy identifies three key objectives for state debt management, such as attracting long-term concessional funding and maximizing the share of grants in official sector support, maintaining strong investor relations and pursuing the development of local capital markets, as well as containing the refinancing risk, including by increasing the maturity of domestic debt issuances.