Ukraine's funding deficit to grow due to war escalation and stalled reforms - Reuters
Kyiv • UNN
Ukraine will face a significant increase in its funding deficit next year due to intense Russian attacks and failure to meet foreign creditors' reform demands. The country needs between $39 billion and $58 billion in external financing for next year alone.
Ukraine's funding gap will significantly widen next year if Russia continues its intense attacks across the country and the government fails to respond to foreign creditors' demands for reforms, UNN reports with reference to Reuters.
Details
The government spends most of its state revenues on the army and finances social and humanitarian expenditures through foreign aid, which, according to state data, has amounted to $139 billion since Russia's full-scale invasion began in February 2022.
Central Bank Governor Andriy Pyshnyi stated that only about a third of the $65 billion needed for both 2026 and 2027 has been pledged, with the rest still under negotiation.
A survey of eight economists conducted by the Centre for Economic Research, a Kyiv-based think tank, showed that Ukraine would need between $39 billion – this year's amount – and about $58 billion in external financing for next year alone. This task is urgent.
The key challenge for the government now is to find an additional $10-15 billion on top of the aid volume that partners have already pledged for 2026
These negotiations may become more complicated after Ukraine failed to meet key targets agreed with creditors – including the appointment of judges and other key officials – and the president tightened control over two main agencies investigating corruption.
This move by President Volodymyr Zelenskyy caused the largest wartime street protests in Ukraine and drew sharp criticism from Kyiv's European allies, who made it clear that decisive anti-corruption measures are key to the country's EU aspirations.
Zelenskyy abandoned his previous intentions and submitted a new bill to parliament, promising to restore the independence of institutions created to eradicate corruption, even at the highest level.
The vote on the bill is scheduled for Thursday evening. But, experts say, some damage has already been done.
While Europe is unlikely to abandon Ukraine, future financial and military support is likely to come under much closer scrutiny, leading to delays that Ukraine can ill afford
This is one of them, and it's not even their mandate, although they link it to inflation.
To unlock the next tranches of multi-year lending programs from the European Union and the International Monetary Fund, Ukraine needs to take various reform steps, which include hiring more judges for the highest anti-corruption court, reforming the agency responsible for managing nationalized assets, and appointing the head of the Bureau of Economic Security.
In the first quarter of this year, Ukraine missed several funding targets under the four-year, 50 billion euro aid program for Ukraine approved by the EU last year, two officials familiar with the matter said.
In June, Ukraine requested 3 billion euros instead of the 4.5 billion euros it was supposed to receive for the second quarter, they said.
The Ministry of Economy, the coordinator of this fund, stated that Ukraine is fulfilling all its obligations, despite wartime challenges, and expects a tranche of about 3 billion euros in August.
The ministry said it hopes to receive a tranche of 1.45 billion euros later. According to officials, Ukraine also has a support program with the IMF worth $15.5 billion and plans to negotiate a new lending program.
Officials say the government is working to implement all necessary reform steps, but some more complex tasks require more time. Last year, the economy grew by 2.9%, but for this year, the central bank lowered its forecast to 2.1% as hopes for a quick end to the war, as predicted by US President Donald Trump, faded.
While many of us previously assumed that 2026 would be easier, we now expect the war to continue next year as well
She named mining and agriculture among the economic weaknesses. As Russian troops advance in eastern Donetsk Oblast, Ukraine is losing key assets, including the country's only coking coal mine near the besieged city of Pokrovsk.
Russian strikes have also damaged gas production in Ukraine
Addition
The Ministry of Economy of Ukraine states that it is fulfilling its obligations to the EU, expecting 12.5 billion euros in support for 2025. This comes against the backdrop of a reduction in the next aid tranche due to delayed reforms, although Ukraine claims that 13 out of 16 necessary reforms have been implemented.