THE ROLE OF THE BANKING SYSTEM IN FINANCING THE STATE BUDGET IN A WAR ECONOMY: ANALYSIS AND TRENDS

Abstract

This article examines the role of the banking system in financing Ukraine’s state budget under a war economy and identifies the main trends in the interaction between public finances and the banking sector. The relevance of the topic stems from the need to ensure the country’s macro-financial stability in the context of full-scale war, a sharp rise in the budget deficit, increased demand for financial resources for defence and social spending, as well as the growing role of the domestic government bond market in the system of financing public needs. The aim of the article is to conduct a comprehensive study of the mechanisms of interaction between public finances and the banking system of Ukraine in a war economy and to determine their impact on the financing of the state budget and the maintenance of macro-financial stability. The methodological basis of the study consists of general scientific and specialised methods of economic analysis. The following methods were employed in the course of the study statistical and comparative analysis – to assess the dynamics of public debt, the structure of government bond holders, and changes in interest rates; graphical methods – to visualise trends in the development of the domestic government securities market; correlation analysis – to determine the relationship between the NBU’s discount rate and the weighted average yield on government bonds; forecasting methods – to assess the prospects for changes in government bond yields over the medium term. The study found that Ukraine’s banking system is a key domestic investor in government debt instruments and provides financing for a significant portion of domestic government debt through the government bond market. It was determined that the increase in the NBU discount rate in the early years of the full-scale war contributed to the stabilisation of the foreign exchange market and the containment of inflation, but at the same time led to a rise in the yields on government securities and the cost of government borrowing. The forecast calculations carried out indicate the possibility of a gradual decline in OVDP yields in 2026–2028, provided that macroeconomic stabilisation continues. The practical value of this article lies in the potential to use the findings to enhance the effectiveness of the interaction between the banking system and public finances in the context of wartime and post-war economic transformations.