Ukraine’s funding gap — by the numbers

A ballooning defense budget and dwindling international aid could push Ukraine’s war-torn economy to the brink.

Ukraine's 2024 budget allocates nearly $40 billion — roughly half of its total expenses — to defense | Scott Olson/Getty Images

It's little wonder Ukraine will be paying close attention to next week's European Council summit where it hopes to secure an emergency injection of €50 billion through until 2027.

As Kyiv prepares for its third year of war against Russia — one of its greatest strategic uncertainties hinges on whether international support can prevent its budget from hemorrhaging.

Ukraine's 2024 budget allocates nearly $40 billion — roughly half of its total expenses — to defense, which will be almost entirely covered by taxation. That leaves a hefty bill of some $40 billion to ensure the rest of the state apparatus — from social security transfers to the health care system — keeps functioning.

"The dependence of Ukraine's budget on external support cannot be overstated," experts from the Center of Public Finance and Governance at the Kyiv School of Economics (KSE) wrote in response to questions from POLITICO.

According to the International Monetary Fund, Ukraine would need at least $37 billion in external support this year, most of which would come from the EU and the U.S. — but neither has made a final decision on the amount of aid, nor its conditions.

EU leaders are set to meet on February 1 to unlock their package, hoping to overcome — or circumvent — Hungary's opposition.

In an interview with POLITICO last November, Ukraine's Finance Minister Serhiy Marchenko urged European allies to unlock the vital cash lifeline, warning that his country's economic collapse would be “very, very traumatic not only for Ukraine but for all of Europe."

The country would be able to survive some delay in Western assistance by increasing taxation, selling government bonds, or obtaining piecemeal support from other international partners, wrote the experts from KSE.

However, they warned that those solutions would be temporary and in the longer term "there is no equivalent alternative to external financial assistance for fulfilling all budgetary obligations in Ukraine."

"If the country still survives some delay in Western assistance, albeit with negative economic consequences, then the complete cessation of support will lead to a collapse of the budgetary system," the KSE experts wrote.

So how bad is it looking for Ukraine? POLITICO crunched the numbers behind Kyiv's state budget to find out.

Veronika Melkozerova contributed reporting.