Danylo Hetmantsev, chairman of the Parliamentary Committee on Finance, Taxation and Customs Policy, has announced an initiative to stimulate demand for domestic government bonds (DGBs) among the population in times of war. He proposed to introduce a mandatory purchase of government securities in the amount of 7% of the official income of each Ukrainian.
Hetmantsev noted that in times of war, an increase in the placement of domestic government bonds is one of the few available domestic sources of financing, along with tax increases, that can partially cover the needs for security and defence financing.
Increasing domestic market borrowing also avoids the use of emission financing of the budget deficit, which was used in 2022 and contributed to inflation. Therefore, the task for the near future is to develop liquidity in the primary and secondary markets for domestic government bonds.
In his view, maintaining demand for domestic government bonds depends on maintaining attractive interest rates. The weighted average yield of hryvnia domestic government bonds issued in October was 15.6%, which is ahead of the expected devaluation and inflation. For households, these instruments are more profitable than deposits, as investment income from them is not subject to personal income tax and military duty.
Hetmantsev cited the example of Israel, which during major wars introduced mandatory savings schemes to mobilise domestic savings, including a long-term mandatory military loan. In particular, 7% of the taxable income of employees and businesses was allocated to purchase military bonds, which yielded 5% and were tax-free, and the loan body was indexed to the cost of living.
According to Hetmantsev, a similar instrument, limited to wartime and designed exclusively to support the security and defence sector, could be introduced in Ukraine. He noted that although there is already a military tax, the mandatory purchase of military bonds could be an additional tool, especially with the participation of state-owned banks, which should develop individual purchase plans.
