This year, budget revenues are showing signs of improvement, and the deficit is on a downward trajectory. However, the increasingly remote prospect of ending the war, coupled with a sharp decline in military assistance from the United States, necessitates decisive action to boost domestic revenue generation, secure additional military aid from the European Union and restructure public expenditures to prioritize defense and security programs.
The revenue collection trends for both the state and local budgets in 2025 demonstrated overall positive momentum, although some isolated challenges emerged. In the first four months of the year, Ukraine’s total budget revenues rose by 44.3 percent relative to the corresponding period in 2024. Excluding grant inflows and institutional own-source revenues, the increase amounted to 17.6 percent.
Relative to January–April 2021, Ukraine’s consolidated budget revenues recorded a real increase of 54 percent—up from a 30.4 percent gain observed the previous year. Real values were derived using a weighted composite index combining the cumulative Consumer Price Index (CPI) and the Industrial Producer Price Index (PPI) with respective weights of 70 and 30 percent.
In real terms, consolidated budget revenues without foreign grants and own revenues of budgetary institutions were 2.5 percent higher than in January–April 2021, while Ukraine’s real GDP in April 2025 was 23 percent lower than before the war (see Figure 1).
In terms of individual taxes and fees, in January–April 2025, the revenue figures were optimistic compared to January–April 2021:
- corporate income tax — an increase in real revenues by 62 percent;
- personal income tax — by 14 percent;
- VAT on goods (services) produced in Ukraine — by 11 percent;
- excise tax on imported goods — by 8 percent;
- excise tax on retail trade — by 24 percent;
- non-tax revenues — a real fourfold increase, mainly thanks to property income and own revenues of budgetary institutions.
The most problematic sources of revenue in the first four months of 2025 were:
- rent and fees for special use of natural resources — a real drop of 56 percent compared to the first four months of 2021;
- VAT on imports decreased by 24 percent;
- taxes on international trade fell by 25 percent;
- property tax saw a decline by 32 percent;
- environmental tax dropped by 58 percent;
- administrative fees, income from non-commercial activities decreased by 39 percent.
Unfortunately, the improvement in budget revenues had little impact on the budget deficit and the growth of public debt. At the end of April, the latter reached UAH 7.5 trillion, or 98 percent of last year’s GDP. The hryvnia value of the public debt increased by UAH 500 billion in the first four months of 2025.
The budget deficit in January–April 2025 amounted to UAH 254 billion and slightly decreased compared to January–April 2024. However, experts estimate that the 2025 budget will have a significant hidden deficit given the intensity of hostilities and the reduction in foreign military aid. Currently, the annual budget plan for 2025 provides for defense funding of UAH 1.9 trillion, while its actual value in 2024 is UAH 2.3 trillion.
This year, the only significant source of deficit financing is external borrowing: net borrowings through this channel amounted to UAH 414.5 billion (see Table 1). The domestic borrowing channel was used to withdraw budgetary resources in favor of creditors: in January—April 2025, the repayment and servicing of domestic debt exceeded the amount of domestic borrowing by UAH 100 billion. The NBU’s chronically tight monetary policy and the high cost of domestic borrowing lead to the depletion of the country’s budgetary potential and hinder the government’s active use of domestic borrowing.
Table 1. Budget deficit and sources of its financing in 2021–2025, UAH billion
The real value of consolidated budget expenditures in January–April 2025 was 79.5 percent higher than in January–April 2021 (see Figure 2). The upward trend in total expenditures began in 2022, supported by external sources. The overall growth in expenditures was attributed exclusively to the financing of defense, law enforcement and housing and public utility services. Only these three expenditure components saw positive real growth rates. In real terms, defense spending in 2025 was almost 14 times as high as in 2021, and public order and security spending increased by a factor of 2.6.
To prioritize the country’s defense, all social and economic budget expenditures were significantly reduced in real terms. These cuts, however, did not affect public debt service, which was higher in real terms in 2025 than in 2021.
Between January and April 2025, real expenditures on state economic activities declined by 41 percent compared to the same period in 2021. Healthcare spending fell by 31 percent, education by 38 percent, and allocations for spiritual and physical development were also reduced by 38 percent.
Budget funding for defense in January–April 2025 reached almost UAH 900 billion, including UAH 608 billion from the general budget fund. For comparison, in January–April 2024, defense funding amounted to UAH 578 billion and UAH 434 billion, respectively.
This year, funding for the budget program for the development, purchase, modernization and repair of weapons, military equipment and machinery of the Ministry of Defense reached a maximum of UAH 422 billion, while in January–April 2024 it was UAH 220 billion, and in January–April 2023 it amounted to UAH 228 billion (see Table 2).
However, only UAH 185 billion, or 44 percent of the total expenditures, including the special budget fund, was allocated from the general budget fund for this program in 2025. For comparison, funding from the general fund of the development, procurement, modernization and weapon repair program amounted to UAH 118 billion for the first four months of 2023 and UAH 110 billion for the first four months of 2024.
Table 2. Financing of the main budget program for material support of the Armed Forces of Ukraine in 2023–2025, UAH billion
A significant reduction in US military aid and the low likelihood of the new administration approving a new military aid package for Ukraine pose real threats to the country’s defense capabilities and require an increase in domestic funding for the country’s military and defense activities by optimizing social and economic budget expenditures and raising additional budget revenues.
In terms of revenue, it is advisable to increase excise tax rates and modify carbon taxation in line with EU directives, temporarily raise the VAT rate to 22 percent, rationalize tax exemptions and introduce taxation of virtual assets in line with EU rules.
Active diplomatic work is also needed to mobilize adequate military assistance from European allies and to propose ways of integrating Ukraine’s defense industry into the EU’s ReArm Europe strategic plan.
As for the quantitative aspects of this issue, according to the Kiel Institute, US military assistance in value amounted to €20.1 billion in 2024 and €17.8 billion in 2023. In January–February 2025, military aid was only €0.5 billion, and unused funding from the previous package amounted to €6.3 billion. The actual quarterly volumes of US military aid and its comparison with European aid are shown in Figure 3.
In 2025, under a pessimistic scenario (if the White House administration refuses to provide military assistance to our country), support for Ukraine’s defense efforts, at least on the scale of 2024, will require additional allocations of at least $15 billion for weapons and military equipment from the government and European allies. At the same time, Europe’s current military support ($22 billion in 2024) should be maintained and strengthened.
In order to preserve Ukrainian statehood and protect Europe from the Russian onslaught, it is imperative to urgently channel financial and material resources from the EU to Ukraine’s defense sector.
In March, the European Commission released the White Paper on European Defense and the ReArm Europe/Readiness 2030 Plan. To finance them, it is planned to increase national defense spending by €650 billion and attract €150 billion in loans for defense procurement. According to Article 41(2) of the Treaty on the Functioning of the EU, the EU budget does not have the authority to finance military or defense operations. Therefore, the European Commission was forced to develop a plan for rearming Europe with the inclusion of new financial instruments.
This plan provides for:
- Increasing opportunities for defense financing at the national level by member states through the activation of the Stability and Growth Pact exemption and the expansion of fiscal space for defense programs;
- Using Security Action for Europe (SAFE), a targeted financial instrument designed to increase investment in Europe’s defense capabilities and support member states’ efforts to invest in the defense industry through loans secured by the EU budget.
Only EU members will be able to receive loans of up to €150 billion, but if they wish, they will have the right to partially use them for joint procurement with Ukraine, including the purchase of Ukrainian defense industry products for the needs of the Armed Forces. That is, part of the total funding of €800 billion can be used to provide military assistance to Ukraine. The Defense White Paper calls for significant defense investments, procurement of strategic weapons systems and increasing defense production capacity in the EU; among other things, it is planned to produce 2 million shells annually for Ukraine.
Accordingly, the urgent priorities today are Ukraine’s swift integration into the ReArm Europe framework, with a focus on long-term objectives of establishing a joint defense system between Ukraine and the European Union, as well as active engagement with European allies to offset the reduction in US military assistance and to secure adequate funding for Ukraine’s military and defense efforts.