In all the speculation about when Russia might run out of money to fund its war in Ukraine, one fact has gone largely unnoticed: Ukraine’s pockets are emptying first. Kyiv has approved a draft State Budget for next year that devotes record sums for defence with a projected deficit of 18.4 per cent of GDP – some 2.4 trillion hryvnias (£46 billion). The IMF estimates the realistic deficit could be some £20 billion higher. In addition, the government still needs to plug a hole of nearly £6 billion in the current budget. As in previous years, the plan is to turn to allies, cap in hand, hoping that their generosity can keep pace with Ukraine’s mounting needs.
Ukraine spends 31 per cent of its GDP – roughly £92 billion a year – on the war, compared with Russia’s £120 billion war budget. Kyiv can cover only half of that amount through taxes and domestic borrowing, while the rest falls on the shoulders of its allies. ‘Plan A is to finish the war, Plan B is £92 billion,’ Volodymyr Zelensky said this week. No agreements or promises have yet been made that Ukraine’s partners are prepared to transfer such a vast sum.
Since February 2022, Kyiv has received more than £110 billion in financial aid from its allies, but none of it can be spent directly on military needs, even when the aid arrives with a surplus. Foreign financial assistance is allowed to cover only the social sector. In the new budget, Zelensky’s office plans to use these funds to raise pensions and the minimum wage, increase teachers’ salaries, provide more scholarships for students, build rehabilitation centres for veterans, create bomb shelters and offer compensation for Ukrainians whose homes were destroyed by Russian attacks. The government hopes this will help to make the war more bearable for the already worn-out population, though some accuse Zelensky of laying the groundwork for future elections.
Zelensky’s main trouble, though, is finding cash to pay salaries for Ukraine’s 800,000-strong army, compensation for the families of the missing and the dead (up to £280,000), the construction of fortifications and the purchase of ammunition and weapons. Given that funds for weapons have already been diverted from the soldiers’ pay for this autumn, and that in the past month alone Russia has returned the bodies of at least 2,000 fallen Ukrainian defenders, the accumulated expenses pushed these payments far beyond the levels originally set in the budget.
There are, in theory, two obvious solutions. First, to convince Ukraine’s partners to lift the ban on using at least some of the financial aid for military needs. The UK has recently set a precedent, allocating about £2.4 billion for Ukraine’s defence industry under the G7 loan covered by profits from frozen Russian assets. Second, more than £240 billion in frozen Russian assets held in Belgium could more than cover all of Ukraine’s needs at no cost to European taxpayers. The Trump administration has recently been pressing the EU to release the funds, but that call went unanswered.
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