Scenarios for Ukraine: the government and the IMF agree on how to balance the country’s financial balance
8 April 17:42
Ukraine will create a financial reserve of more than $10 billion in case of a negative scenario in which the war lasts until mid-2026. This is stated in the updated program of cooperation between Ukraine and the IMF under the Extended Fund Facility (EFF), reports
As you know, last week the state budget received another tranche from the IMF in the amount of about $400 million. It was reported that the IMF had reduced the size of this tranche from $900 million to $400 million at the request of the Ukrainian Ministry of Finance to reserve more funds for the next year.
Ukrainian officials are aware that the situation with financing in 2026 will be extremely difficult, and therefore, together with the IMF, they are trying to create a kind of “financial cushion.” However, the main hope here is not so much on IMF loans as on the proceeds from the profits from the frozen assets of the Russian Federation.
What Ukrainian officials have agreed with their partners
As stated in the materials of the updated program of cooperation with the International Monetary Fund, Ukraine will divide external financing from the G7 countries under the ERA mechanism into three parts and create a financial buffer of $10.1 billion in case of a negative scenario.
“The authorities have undertaken the following commitments: one part will be allocated for budget financing of the current year, another part will be allocated for preliminary financing of the next year’s deficit, and the third part will be conditional financing for a negative scenario,” IMF representatives said in a document published on the Fund’s website.
How much money should come under the ERA program
The ERA mechanism provides for the transfer of funds received from the proceeds of frozen assets to the Russian Federation.
At the moment, this mechanism is expected to receive a total of $44.1 billion in the period up to the first quarter of 2027. The total announced amount reaches $50 billion.
Last year, Ukraine already received $1 billion, this year it will receive $39.4 billion, next year – $2.4 billion, and in 2027 – $1.3 billion.
What are the options for allocating funds under the ERA program?
The baseline scenario assumes that $8.4 billion of the funds received this year will be used as advance financing of the budget deficit of the following years: $8.1 billion will be used in 2026 and another $0.3 billion in the first quarter of 2027.
In the case of a negative scenario, $9.1 billion from this year’s ERA revenues and $1 billion from next year’s revenues will be used to form a financial buffer.
What financial scenarios are being considered
The updated program of cooperation with the IMF stipulates that under the baseline scenario, in which the war ends at the end of 2025, the amount of external financing to cover the deficit should be $39.8 billion this year, $20 billion next year, and $3.1 billion in the first quarter of 2027.
Under the negative scenario, in which the war will last until mid-2026, and shocks are expected in the second quarter of this year, the amount of external financing to cover the deficit will reach $48.8 billion this year, $21 billion next year, and $7.1 billion in the first quarter of 2027.
The IMF emphasizes that the Ukrainian authorities will rely on the provisions of the Budget Code of Ukraine to allocate sufficient resources for pre-financing and reserves, as well as to comply with the expenditure limits set in the 2025 budget in order to implement prudent management of ERA flows. In addition, as the IMF representatives emphasized, the Ukrainian authorities have committed to revise any categories of expenditures, if necessary, only after consultation with the Fund’s staff.
The IMF announced its forecast for the end of the war in Ukraine
According to the International Monetary Fund, Russia’s war against Ukraine may end in the last months of 2025.
As noted in the IMF report, “although the risks remain exceptionally high, the baseline scenario still assumes that the war will end in the last months of this year.”
The IMF also stated that “negotiations to end the war are at a very early stage.”
There is speculation that the 2025 budget will have to be changed
The expenditure part of this year’s budget may have to be increased by several hundred billion hryvnias to finance defense spending. This was reported by Ekonomichna Pravda, citing its own sources in the government and parliament.
As noted, since the beginning of 2025, the Ministry of Defense has been exceeding its spending plan. The main reason for this is the purchase of ammunition, which has been used to pay for the military’s salaries. That is, in the first months of the year, funds that were planned for October-December are being spent. The total amount of expenditures that have been brought closer in this way exceeded UAH 200 billion.
Where do they plan to find the funds?
While last year the problems with the defense sector’s finances were solved through tax changes, this year this option is not yet being considered. The government expects higher profit allocations from the National Bank, hopes that foreign partners will finance part of defense procurement, and is preparing to increase domestic borrowing through the issuance of domestic government bonds.
Danylo Hetmantsev, Chairman of the Verkhovna Rada Committee on Finance, Taxation and Customs Policy, also suggests paying attention to the following unused budget reserves
– De-shadowing, which should raise at least $4 billion in addition to the budget plan this year, and even more next year
– cutting spending on inefficient budget programs such as cashback;
– and raising additional funds through domestic government bonds at the expense of bank liquidity and local budgets – without these borrowings, we cannot do without them.
According to Danylo Hetmantsev, the issue of raising taxes cannot be considered until the above resources are exhausted.
By the way, today the Ministry of Finance stated that the information spread by the media about the threat of payments to the military is not true. The ministry assured that financing the Armed Forces of Ukraine is an absolute priority for the Ministry of Finance and that Ukraine’s defenders are receiving and will continue to receive their salaries according to the plan. The Ministry of Finance assured that funds for this are provided for in the state budget of Ukraine for 2025.
