50.4% of all Ukrainian state spending, or 22.1% of GDP, will go to defense in 2024, according to the draft state budget approved by parliament this Thursday and which reveals that only slightly more Half of all expenses, 52.8%, will be covered with the country’s own resources.
Currently, the country uses all its tax revenues and domestic debt to finance its huge army, while grants and loans from foreign partners, especially the EU, the US and the G7 countries, go towards meeting the state’s non-military obligations. .
Ukraine’s ability to raise funds for its state budget through taxes and domestic borrowing has reached the “limit,” according to the country’s Finance Minister Sergiy Marchenko, who noted that much of the $27 billion budgeted would have to come from external sources.
“It’s a critical issue. I don’t know how we’re going to get this amount of money next year,” he said Wednesday in a debate in Ukraine’s parliament.
He explained to parliamentarians that the State has not planned capital investments for 2024, with the defense of the country being the top priority.
“We need to create conditions to change the course of the military campaign,” Marchenko stressed.
Parliament responded on Wednesday by voting on a bill that is expected to provide the state with the equivalent of an additional 5.6 billion euros until the end of 2024.
Among other measures, the bill provides that personal income taxes paid by Ukrainian soldiers will now count as income at the state level instead of going to the budgets of those local communities where their military units are based.
45% of the funds will go to the acquisition of drones for the Ukrainian army, while another 45% will go to artillery and ammunition, according to the chair of the parliament’s budget committee, Roksolana Pidlasa.
The decision ends a months-long discussion, which pitted some heads of local authorities, such as Kiev Mayor Vitali Klitschko, against the central government, while leaving experts divided.
Klitschko. considers that the bill shows the “failure” of the central government and shifts the burden to local authorities.
At the same time, the decision is viewed favorably by activists who have called for allocating large amounts of funds from local budgets to financing the army.
Some city council decisions have sparked protests against expenses, such as the reconstruction of roads or sports centres, which many consider insignificant and wasteful in the midst of the ongoing war.
Due to public reaction some have since been removed. Some municipalities, such as Lviv, have recently increased their military-related expenses.
The economy is expected to grow 4.9% in 2023. However, it remains heavily affected by the war, with GDP around 75% of the pre-invasion level.
This makes external financing the most viable route. Marchenko noted that securing funds is a priority for the country’s leadership.
“This is a problem for the government, for the embassies and for the president. We are looking for a way to find those 27 billion,” he said, adding that even this sum is the absolute minimum for the military.
According to the National Bank of Ukraine, its central bank, the country is on track to receive at least €42 billion in financial aid, much of it in the form of loans, from abroad in 2023. The amount of aid is expected to fall to about 36 billion euros in 2024 and 23.4 billion euros in 2025.
“It will be of vital importance for Ukraine to fulfill its obligations and actively cooperate with the IMF and other international partners,” he underlines in the latest report.
