Budget Deficit 2025: Expenditures Covered by International Assistance
11 March 2025 12:18
In January-February 2025, Ukraine’s state budget deficit remained significant, but it was financed by accumulated funds and international assistance. In particular, in January, Ukraine received €3 billion of the first tranche under the EU’s ERA mechanism. This is stated in the March report of the National Bank of Ukraine, "Komersant Ukrainian" reports.
Meanwhile, tax revenues have increased due to higher tax rates in 2024, improved administration, and higher wages. However, total state budget revenues in February were lower year-on-year due to the effect of the high base of the previous year, when companies paid a number of mandatory payments ahead of schedule.
Defense and social programs remain the main items of expenditures. In January, defense spending was more than 3.5 times higher than in January 2024. At the same time, there is a high need to finance economic activity, general government functions, and social protection.
Despite the high liquidity of the budget at the beginning of the year, activity in the domestic government debt securities market declined, with the level of their rollovers in all currencies amounting to only 71%. This indicates a certain degree of investor caution and the dependence of deficit financing on external assistance.
Overall, the public sector remains stable thanks to timely financial injections from abroad. However, further financing of expenditures will largely depend on new international aid inflows and effective domestic debt management.
Ukraine Facility
One of the most important mechanisms for financing Ukraine in times of war is the Ukraine Facility, a €50 billion financing scheme for Ukraine from the European Union for the period of 2024-2027. This program consists of €17 billion in grants and €33 billion in loans. The mechanism provides not only for financing budgetary areas in Ukraine during the war, but also for programs aimed at implementing the reforms on which Ukraine’s accession to the EU depends.
The resolution emphasizes that the EU’s support should be directed in three areas:
- Financial support for Ukraine to implement reforms and investments, as well as to maintain the country’s macro-financial stability, as envisaged in the Ukraine Plan to be developed by the Ukrainian government.
- Ukraine’s investment framework to mobilize investment and expand access to finance.
- Assistance on the path to European integration to mobilize technical expertise and capacity building.
What does the plan for the Ukraine Facility envisage?
The Ukraine Facility Plan envisages the implementation of structural reforms in the public sector, a number of economic reforms aimed at improving the business climate and entrepreneurship, and steps to develop priority sectors that can ensure rapid economic growth. Implementation of the Plan will contribute to Ukraine’s European integration and further sustainable economic development.
The Ukraine Facility Plan includes more than 150 indicators in 69 reform areas to be implemented by 2027. The plan was developed in full synchronization with Ukraine’s key international partners.
The Ukraine Facility Plan also includes 16 investment indicators that are part of the overall list of changes. In order to fulfill them, it is necessary to continue and strengthen programs for infrastructure development, demining, renewable energy, support for small and medium-sized enterprises, etc.
Funding under the Ukraine Facility program directly depends on the fulfillment of the indicators set out in the Ukraine Facility Plan. In 2024, more than 36 indicators are planned to be implemented in the areas of improving public financial management, fighting corruption, managing state property, developing human capital, improving the business environment, and developing priority sectors.
It is expected that the last payment under the program will be made in 2028 based on the results of the indicators for the fourth quarter of 2027.
A €6 billion transitional financing mechanism is envisaged for the period until the final launch of the Ukraine Facility program.
As part of the transitional financing agreements, Ukraine is implementing 5 indicators in the areas of public financial management, anti-corruption, business environment development, and land market functioning. Three of them have already been implemented, and two more steps required to receive transitional financing are being developed.
