The most heated debate concerns the increase in spending on civilian needs against the backdrop of defense spending remaining at 2025 levels and a ₴300 billion shortfall for defense this year. Despite the ₴200 billion reserve, key areas of defense for next year are underfunded.
The demand for external financing is increasing amid growing difficulties in attracting it. While the draft budget for 2025 outlined a reduction in needs to $38.4 billion (vs. $41.3 billion in 2024) to restore our finances, the 2026 budget shows an increase to $45.5 billion. Moreover, $18.1 billion of this amount is not secured by commitments from partners, although it could be covered by Russia’s frozen gold and foreign exchange reserves. Of course, Ukraine cannot finance its defense needs on its own, and no one expects it to; however, there must be a clear vision for overcoming its dependence on external funds. Instead, increasing demand will only intensify criticism from Western political leaders.
The preservation of the “national cashback” program signals that little attention is being paid to assessing the effectiveness of spending. Perhaps individual programs do not cost much in comparison to the total expenditures of ₴4.8 trillion. But even if the most questionable programs are ignored, it is unlikely that there will be a reassessment of the costs hidden in the estimates of thousands of budget administrators.
On the positive side, the government has allocated UAH 50 million to create a cumulative pension system, but has left indexation in place. However, spending on education (+30.5%) and healthcare (+14.6%) has increased, which, in the absence of guarantees of external financing, is not the “all for the army” budget that the government declares.
A positive development is the inclusion of revenues from de-shadowing – UAH 60 billion from customs reform. This is the key to bringing significant funds out of the shadows, unlike the idea of officials to “snap up the simplified tax system.” This process will take a considerable amount of time, but it is an official commitment on which macro-financial assistance from the IMF depends. However, the budget does not provide for funding for the reform of the fiscal authorities responsible for this “de-shadowing.”
The draft budget is not aligned with the government’s program, which explicitly outlines goals for fiscal reforms and industrial development. Instead, it provides for an increase in social payments, while allocating only about ₴4.8 billion for economic growth, which is more of a pilot project and does not align with the declared ambitions.
The budget balances political and social priorities against the backdrop of war, shifting the focus from reforms to short-term stabilization. In the event of a slowdown or shortfall in external revenues, the next step will be to consider tax increases. The ultimate tool—money supply—will accelerate inflation, erode household purchasing power, and negate social gains.
This budget is not a defense budget, as it does not make defense an unquestionable priority, nor is it a development budget, as it does not allocate resources for structural changes. With the increase in social spending, this budget aims to stabilize politics ahead of the likely 2026 elections.
The situation is complex and not improving, so dividing small funds among pressing needs is a complex and thankless task. We would like to see the government develop a systematic vision of how the country’s budget can cease to be an endless “black hole” for our allies. “Endless war” is already our reality, where Russia’s gold and foreign exchange reserves, against which we have already been allocated $50 billion, are only enough to finance our needs for a few years. If our decision is a “resource agreement,” then we are interested in the details, and to implement it, our government will have to make unpopular and difficult decisions to improve the investment climate. If the decision is to include our needs in the EU’s annual budgets, then we are interested in how realistic such a plan is. For our strategy for victory to be more than just a slogan, we need an answer to this question.