This paper reviews and discusses recent government debt management in Ukraine. Of special interest are the implications it has for the development of domestic private financial markets. The basic conclusion of the paper is that the heavy reliance on external debt as a source of government financing is a key constraint for the development of domestic financial markets. In addition, current borrowing patterns pose significant risks both to the budget and – by encouraging the private sector to also borrow extensively in foreign currency – to the economy at large. Against these costs stand fiscal gains from lower interest payments on foreign debt. While a quantification of these costs and benefits is not straight forward, the paper urges the authorities to take a broader view of debt management and its macroeconomic implications than indicated by a narrow focus on the current cost of debt service.