For Ukraine, the financial front represents a critical, though often unseen, dimension of its conflict with Russia. Maintaining economic stability is not merely about addressing present needs but is intrinsically linked to securing the future that the nation has been fighting for over four years.
“We do not aspire to be merely a neighboring nation reliant on handouts,” stated Sergii Marchenko, Ukraine’s Minister of Finance. He elaborated, referencing the hard-won military expertise Ukraine has acquired since February 2022, “We aim to supply Europe with capabilities it currently lacks.” Marchenko suggested that the profound and difficult experiences his country has undergone could provide valuable defense strategies to the rest of the continent.
The European Union’s financial assistance is highly valued by Kyiv, as membership in the bloc remains a primary objective. These contributions are fostering closer ties and equipping Ukraine with an advantage against Russia.
A significant development is the approval of a new €90 billion ($105 billion) loan from the EU. This funding is intended to bridge Ukraine’s budgetary deficit over the next two years. The European Parliament has given its assent, with initial disbursements anticipated as early as April. This loan constitutes the largest portion of a comprehensive $136.5 billion (£101 billion) international aid package, without which Marchenko contends his nation would struggle to endure its current circumstances.
“Our formidable army is underpinned by a robust economy, as all the resources we mobilize domestically are directed towards the defense of our nation,” Marchenko explained. He expressed gratitude for international aid but emphasized, “Ukraine’s own taxpayers are providing the most substantial support for our military.”
In December 2024, Ukraine implemented its first tax increases since the onset of the war. These adjustments affected personal incomes, small businesses, and financial entities. This measure is a contributing factor to the expectation that domestic revenue will reach $67.5 billion for the government this year, marking a 15% increase from the previous year.
However, the government’s budget for 2026 projects expenditures of approximately $112 billion, with about 60% allocated to the military. This leaves an estimated shortfall of roughly $45 billion. To address this gap, the government is working to pass contentious new tax legislation through parliament before the end of the current month.
Under the terms of a recent $8.1 billion loan agreement approved by the International Monetary Fund (IMF), Ukraine will see increased taxation on digital platforms, alongside a reduction in value-added tax exemptions. Kyiv received the inaugural $1.5 billion tranche from the IMF at the beginning of this month. Prior to this, Gavin Grey, the IMF’s mission chief for Ukraine, advised that given the country’s persistent high spending requirements, it must operate within its financial means.
Grey further noted that “beyond external assistance, Ukraine must intensify efforts to combat tax evasion and avoidance, and mobilize domestic revenue in the immediate future.” The IMF’s support is instrumental in unlocking EU funds, a fact that has gained even greater importance since the cessation of financial aid from the United States.
With Ukraine potentially facing a funding deficit by the end of April, the nation is also expediting its efforts to meet other EU conditions. A government insider indicated that social and humanitarian expenditures remain the nation’s “foremost priorities.”
Political complexities have arisen, particularly with Hungarian Prime Minister Viktor Orbán withholding his approval for the EU loan. This stance is linked to accusations that Ukraine is imposing an “oil blockade” on Hungary. Kyiv contends that delays in repairing the pipeline supplying Russian oil to Hungary are due to damage sustained by repair crews from further Russian attacks. Consequently, the outcome of Hungary’s upcoming elections holds significant weight for Ukraine.
However, some analyses suggest that Ukraine’s current reform path may not be the most effective strategy for ensuring the economic survival of a nation ravaged by war. A recent assessment by the think tank Ukrainian Institute for the Future posits, “We believe that Ukraine, by continuing the war and raising taxes, is moving toward default and economic collapse.”
The war is also placing considerable strain on Russia’s much larger economy. Russia’s military expenditures represent 5.1% of its GDP, a stark contrast to Ukraine’s commitment, where military spending accounts for 27% of its GDP. After four years of conflict, Ukraine’s government relies heavily on foreign aid to cover essential expenses, from pensions to healthcare and education.
This reliance extends to initiatives such as the planned expansion of a free school meal program to encompass the entire country beginning in September. Additionally, teachers received a 30% pay increase this year; the government acknowledges their pivotal role in supporting children throughout the war.
Inflation, though down from a wartime peak of 26.6% to the current 7.4%, persists as a challenge. This means many businesses and consumers nationwide are experiencing the financial repercussions of the conflict.
Tetiana, a 65-year-old pensioner in Kyiv, described the difficulties faced. “I am a pensioner and I have to work because my pension is small and insufficient. Prices for food and utilities have risen.” Mykyta, a 19-year-old working in a restaurant kitchen, shared that his establishment is among many struggling to remain operational. “Salaries are not very high, and we face staffing issues. The team is small because it’s hard to find people to fill positions,” he commented. He added, “During power outages, the kitchen halts, and we have to manage with a generator.”
This challenge is widely shared among businesses. Ukraine’s central bank recently stated, “The precarious situation in the energy sector will continue to inhibit business activity for an extended period.” This outlook led the bank to reduce its economic growth forecast for the year from 2% to 1.8%, although the latest IMF projection suggests growth between 1.8% and 2.5%.
Minister Marchenko identified a primary obstacle for the wider economy: “The biggest challenge is our insufficient electricity supply.” He explained that this limitation prevents companies from achieving their desired productivity levels and compels them to increase product prices to offset the cost of operating generators. Consequently, he stated, “All our governmental programs now channel our resources towards partially restoring electricity generation capacity.”
The significance of this endeavor and efforts to stimulate economic growth were highlighted by last month’s joint estimate from Ukraine’s government, the EU, the World Bank, and the UN, detailing the reconstruction and recovery costs. The estimated $588 billion price tag, nearly two and a half times the size of the entire economy, encompasses the repair of housing, transportation, and other infrastructure, as well as mine clearance operations in areas near the front lines.
Despite these formidable challenges, Gennadiy Chyzhykov, president of the Ukrainian Chamber of Commerce and Industry, which represents over 8,000 companies, expressed optimism. “Despite the war, we observe significant interest from [foreign] businesses, and investment is beginning to flow into Ukraine,” he remarked. Chyzhykov noted a “new trend” involving numerous delegations visiting Ukraine to ascertain needs and prepare for post-war reconstruction. “They believe in victory and in the prospect of thriving business in Ukraine.”
However, a persistent shortage of skilled labor remains a significant hurdle, exacerbated by millions of individuals joining the military or leaving the country. The UN’s International Labour Organisation predicts a deficit of 8.7 million workers for reconstruction efforts, prompting some business leaders to suggest importing labor from abroad.
The European Bank for Reconstruction and Development (EBRD) has provided substantial support, investing over $10 billion in Ukraine since the war began. Its president, Odile Renaud-Basso, stated, “I believe the challenge will be immense, but it can be managed.” She indicated considerable foreign investor appetite, emphasizing that “a genuine, just peace, a credible peace settlement, will be crucial for investors to be assured there is no risk of renewed conflict.”
Given the ongoing conflict and its uncertain resolution, Renaud-Basso added that the EBRD possesses the resources “to continue supporting Ukraine through the war, for as long as it takes.”
The dual pressures of battlefield conflict and maintaining fiscal balance lead Ukraine’s finance minister to admit, “We require support, military support, and budgetary support.” Nevertheless, Marchenko believes the complexities of a wartime economy are catalysts for changes that could foster “a better economy for the future.” He concluded with resolve, “The Ukrainian people, our government, and our economy are resilient and determined to fight this war, because we are defending ourselves, and we will prevail.”