Ukraine’s Public Debt Exceeds 100% of GDP: What This Indicator Really Measures

Is the Debt-to-GDP Ratio an Appropriate Metric for Assessing Debt Sustainability in Wartime?

In recent months, one figure has been actively discussed in Ukraine: public debt has exceeded 100% of GDP. For many, this sounds like a psychological threshold — a line beyond which a country is allegedly destined to enter a risk zone. The very fact of crossing this mark is increasingly presented as a self-sufficient argument in debates about Ukraine’s economic future, fiscal policy, and relations with donors.

At least two opposing positions can be identified in this discussion.

Skeptics argue that public debt above 100% of GDP implies a loss of fiscal sovereignty, an inevitable tightening of external financing conditions, and constraints on economic recovery. Within this logic, Ukraine risks remaining trapped for an extended period in a state of debt dependence, where key budgetary decisions are made not domestically, but within negotiations with creditors.

Optimists, by contrast, point to positive markers under exceptional circumstances: a significant share of concessional and grant financing, long maturities, and a moderate debt service burden during a full-scale war. In their reasoning, the debt-to-GDP ratio per se is not the problem — what matters more is the current cost of debt servicing and the prospects for post-war economic growth.

Both sides appeal to the same figure — the debt-to-GDP ratio — yet arrive at opposite conclusions. This in itself demonstrates that the issue is far from straightforward.

While working on this topic, I came across a recent study by economists Jonathan Burke and Jules van Binsbergen, published as a working paper by the U.S. National Bureau of Economic Research (NBER). Their work does not provide a direct answer to whether Ukraine’s debt is “too high.” Instead, it challenges the correctness of the very question we habitually ask when assessing sovereign debt sustainability.

For decades, the public debt-to-GDP ratio has effectively become the primary indicator of debt sustainability. Once this indicator exceeds a conventional “threshold,” the conclusion is often drawn almost automatically: debt is excessive, fiscal policy is unsustainable, and a harsh adjustment is required.

However, as Burke and van Binsbergen show, there is extremely weak theoretical justification for using the debt-to-GDP ratio as the main — let alone the sole — indicator of debt sustainability. It is a ratio of a stock (the level of debt) to a flow (annual GDP). Such ratios are informative only under strict assumptions of stationarity, stable growth rates, and long-run cointegration between debt and GDP. In the presence of structural shifts in the global economy, these assumptions increasingly fail to hold.

To illustrate the scale of the problem, the authors compare debt-to-GDP with two alternative — and no less logically grounded — indicators of public indebtedness: interest-to-GDP and debt-to-equity. The resulting picture differs markedly from the conventional narrative. While the debt-to-GDP ratio in advanced economies is indeed at historical highs, neither of the two alternative indicators exhibits a comparable dynamic. In the United States, the ratio of interest payments to GDP is comparable to levels observed in the late 1980s and early 1990s, while the debt-to-equity ratio shows no clear upward trend and currently remains below its historical average.

This is not an exception, but a broader international pattern. For a sample of 19 countries accounting for the bulk of global public debt, the median debt-to-GDP ratio has reached its highest level in 125 years. At the same time, both interest-to-GDP and debt-to-equity have been declining since the early 1980s and today remain below their long-term averages.

The key conclusion of Burke and van Binsbergen is measured but far-reaching: a significant share of today’s claims about “unprecedentedly high debt” reflects not so much actual debt pressure as the choice of the indicator through which this debt is viewed.

The public debt-to-GDP ratio itself is not incorrect and cannot simply be discarded. In international practice, it is traditionally used as one of the key indicators in sovereign debt sustainability assessments, alongside deficit dynamics, maturity profiles, debt servicing costs, and access to financing. The problem arises not when debt-to-GDP is used, but when it becomes the sole or dominant lens through which the entire debt situation is interpreted.

For Ukraine, this interpretation is particularly sensitive given the specific features of its current macro-financial model.

The country’s economy is operating under wartime conditions, with substantial losses of productive capacity, territory, capital, and population. GDP under these circumstances is a war-distorted indicator that reflects neither long-term fiscal capacity nor recovery potential. As a result, the debt-to-GDP ratio may rise in the short term not because of excessive debt expansion, but due to a contraction of the denominator.

However, Ukraine’s specificity goes beyond this. For Ukraine, the issue of debt is existentially important, because today debt performs a function that extends far beyond classical budget financing.

The international reserves of the National Bank of Ukraine are formed predominantly through external borrowing and grant inflows mobilized by the state via the Ministry of Finance. In effect, the fiscal sector accumulates external resources which, after conversion and NBU operations, become the backbone of foreign exchange reserves. This has resulted in an inversion of standard macro-financial logic: rather than the central bank building reserves through its own operations, the state — through debt and external assistance — forms the resource base for monetary stability.

Within such a framework, the debt-to-GDP indicator captures only one side of the equation — the growth of liabilities — while failing to show the macro-financial function these liabilities perform. Part of the debt simultaneously serves as a source of reserves, foreign exchange market stabilization, and support for the financial system. Ignoring this linkage oversimplifies the picture and may lead to premature or erroneous conclusions.

For this reason, it is appropriate to consider alternative approaches to assessing debt sustainability — particularly those highlighted by Burke and van Binsbergen. The interest-to-GDP ratio allows for an assessment of the actual current fiscal pressure from debt, which for Ukraine remains limited due to concessional financing terms, long grace periods, and a significant share of non-repayable assistance. This does not eliminate risks over the medium term, but it provides a more accurate picture of the current situation.

Similarly, assessing debt relative to a broader concept of economic capacity — potential national wealth, asset recovery, and the future tax base — is crucial for a country where current GDP is a weak proxy for long-term economic potential.

The core problem in Ukraine’s debt debate lies not so much in the level of debt-to-GDP itself, but in excessive confidence in its explanatory power. In conditions where external borrowing simultaneously finances the budget, builds central bank reserves, and supports exchange rate stability, public debt becomes an element of a broader macro-financial architecture. This architecture can appropriately be described as Donornomics — a system in which donor inflows temporarily substitute for domestic mechanisms of financial equilibrium.

Within Donornomics, debt ceases to be solely a fiscal burden and becomes an institutional stabilization instrument. This is precisely why a mechanical interpretation of debt-to-GDP, without accounting for the role of donor financing, creates the risk of misleading policy signals — from premature fiscal consolidation to erroneous expectations regarding the speed of macro-financial normalization after the war.