Ukraine expects to avoid monetising debt markets in 2025, says central bank governor

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By Karin Strohecker

LONDON (Reuters) – Ukraine’s central bank expects it will not have to fund the government next year, Governor Andriy Pyshnyi told Reuters, as the war-torn country readies to push through its budget for 2025.

Russia’s invasion in February of 2022 has put Ukraine’s finances and economy on a war footing.

But fund raising on the domestic debt market, international financial support and mobilization of internal resources have allowed the country to avoid monetary financing in the past two years in both 2023 and 2024, Pyshnyi said.

“Thanks to domestic debt market and accumulation of internal resources, we will probably avoid monetization in 2025,” said Pyshnyi in emailed comments made before the results of the U.S. election had become clear.

“I am cautiously optimistic,” Pyshnyi said.

Monetary financing refers to the practice of a central bank buying government bonds to fund public spending amid shortfalls in raised taxes or bond sales.

Pyshnyi said his optimism was based on the sign off by the IMF board of the fifth review of the country’s $15.6 billion loan programme in mid-October. The sign off triggered a $1.1 billion payout and review included in its baseline scenario the proceeds of a loan from frozen Russian assets.

An IMF monitoring mission is in Kyiv this week for talks that may open a path for another $1.1 billion tranche under its four-year program.

Leaders of the Group of Seven wealthy democracies struck a deal in October on the delivery of some $50 billion in loans to Ukraine – the Extraordinary Revenue Acceleration (ERA) Loan Initiative.

U.S. President-elect Donald Trump has been critical of the Biden administration’s assistance for Ukraine, fueling concern about the future of support for President Volodymyr Zelenskiy’s government under a Republican-controlled White House, Senate and possibly the House of Representatives.

Ukrainian lawmakers passed the first stage of discussions over the 2025 budget in late October, allocating more than a quarter of GDP for defence as the country struggles to fend off the Russian offensive.

The outlines of the draft budget have been hotly debated with the government saying security and defence are budget priorities and government revenues would be used to strengthen military capabilities. Opposition politicians have criticised the draft saying it did not suit a country at war.

Parliamentarians will debate the bill through several more readings before it is approved no later than Dec. 1.