WAR BONDS AS AN INSTRUMENT FOR FINANCING THE BUDGET UNDER MARTIAL LAW

Abstract

This article examines military bonds as an effective financial instrument for funding state budgets during wartime.  Based on classical economic theory of government debt, military bonds play a crucial role in mobilizing resources for defense needs. The paper reviews international experience, including the United States, the United Kingdom, Canada, and Israel, highlighting successful historical cases such as the U.S. Civil War and both World Wars, where military bonds financed significant wartime expenditures through public support. The focus is on Ukraine’s current issuance of military government domestic bonds (OVDP), analyzing yield trends, investor structure, and institutional framework. Yields consistently exceed inflation and bank deposit rates, attracting a growing number of individual investors alongside banks and the National Bank of Ukraine. This makes military bonds a valuable tool for preserving and growing capital amid macroeconomic instability. A conceptual model illustrates the systemic impact of military bonds on Ukraine’s economy during war and postwar recovery. Key success factors include transparent markets, attractive investment conditions, institutional stability, and active promotion domestically and abroad. Government initiatives such as tax exemptions, commission-free purchases via the “Diia” app, and public communication campaigns have enhanced investor confidence. Military bonds support timely budget deficit financing caused by increased defense and social spending, and help stabilize monetary markets by absorbing excess liquidity. Potential risks include growing debt burden, inflation, currency volatility, and crowding out private credit. The development of the securities market and expanding the investor base strengthen Ukraine’s financial system, though volatility and risk remain. As of May 2025, over UAH 1.7 trillion has been raised through military bonds, with 41,000+ investors, primarily banks and the National Bank, but private investor participation is growing. This diversification improves the resilience of Ukraine’s wartime financing. In conclusion, military bonds combine traditional debt functions with modern features supporting broad investment and national defense funding. To ensure continued success, balancing debt levels, expanding investors, and developing secondary markets are vital. Future research should explore new instruments and international integration to bolster Ukraine’s fiscal and economic stability.