Ukraine proposes record defence spending next year as war costs soar
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Ukraine Finance Minister Sergii Marchenko attends a bilateral meeting with U.S. Treasury Secretary Janet Yellen on the sidelines of the IMF and WB annual meetings, at the Treasury Department in Washington, U.S., October 23, 2024. REUTERS/Kaylee Greenlee Beal
KYIV, Sept 16 - Ukraine is proposing record defence spending for 2027 as the cost of the war with Russia, now in its fifth year, rises and the country needs more financial support from its partners, officials said on Wednesday.
Defence spending is expected to hit 4.89 trillion hryvnias ($110 billion) in 2027, 12% higher than this year. It accounted for about two-thirds of the total spending in a draft 2027 budget of 7.27 trillion hryvnias presented to parliament on Wednesday.
Budget revenues are forecast at 5.6 trillion hryvnias.
"This is the sixth budget of the full-scale war, and it's again bigger than the previous one. During these years, the war has become more expensive," said Roksolana Pidlasa, head of the parliamentary budget committee told lawmakers.
"At the same time, state revenues ... are not growing at the same pace as spending is increasing."
The daily cost of the war has risen to $190 million this year compared with $116 million in 2022 at the start of Russia's invasion, Pidlasa said.
Finance Minister Sergii Marchenko said told parliament that Ukraine would require more than $52 billion in international financial aid next year.
President Volodymyr Zelenskiy's government has secured commitments from partners to cover around $20 billion and was in talks on how to cover the remaining amount, he said.
Marchenko said that Russian assets frozen by Ukraine's European allies could become a key source to cover the budget gap in 2027.
Lawmakers have until October 1 to review the draft budget and submit their proposals. The spending plan must be passed by parliament in three readings by December 1.
UKRAINE'S FINANCIAL SITUATION MORE COMPLICATED
Ukraine's financial situation was getting more complicated this year as Russia intensified its strikes on Ukrainian businesses and infrastructure, the finance minister said.
As the damages has grown, budget revenues have started falling, but at the same time the Ukrainian armed forces have required more funds, Marchenko said. Currently, Ukraine faces an unfunded additional gap for its defence spending of $27 billion this year as the country seeks to increase army wages and further increase its weapons production.
During the earlier years of the war, Ukraine covered its defence needs with its own revenues and relied on foreign financial aid to finance its social and humanitarian spending.
Since the start of the invasion, Ukraine has received about $198 billion in fiscal aid from its foreign partners with the EU providing the bulk.
But to ensure smooth financing from partners, Kyiv needs to push through tax and governance reforms, and meet a number of financial and budget requirements despite wartime challenges.
On Wednesday, parliament passed a bill to impose taxes on foreign parcels in the first reading, moving closer to satisfying one of the key conditions to unlock funds from the International Monetary Fund and the European Union.
"Parliament advanced two essential tax and customs reforms that bring Ukraine's e-commerce framework closer to EU standards, strengthen fiscal resilience and support fairer competition for Ukrainian businesses," Marchenko said.
"This progress also paves the way for around 4 billion euros in EU macro-financial support." REUTERS