Ukraine’s Finance Ministry Revises 2025 Budget to Boost Defense Spending Amid Constraints#

Budget Amendments and Funding Sources#

• Spending and Revenue Adjustments: The revised budget increases spending by 8.44% and revenues by 6.34% for the second half of 2025. An additional Hr.147.5 billion (3.545 billion) in future tax revenues and Hr.184.9 billion (4.449 billion) in domestic borrowing (a 32% increase to Hr.764.1 billion or 18.3 billion) are key funding sources. The budget deficit ceiling was raised, facilitated by a non-repayable loan backed by Russian assets.Link
• Debt Management Savings: Ukraine saved Hr.46.7 billion (1.1 billion) in 2025 debt spending by renegotiating a 20 billion Eurobond debt and skipping a 665 million GDP warrants payment, providing critical cash flow relief.Link
• Budget Reallocations: To fund defense, spending cuts were made to the State Special Communications Service (Hr.21.2 billion, 509.6 million), Ministry of Energy (Hr.240 million, 5.77 million), Ministry of Agrarian Policy (Hr.227 million, 5.46 million), National Anti-Corruption Bureau (Hr.122.56 million, 2.95 million), and Ministry of Education (Hr.191.6 million, 4.6 million).Link

Defense Spending Priorities#

• Defense Ministry Allocation: The Ministry of Defense will receive Hr.338.2 billion (8.127 billion), with Hr.220.89 billion (5.3 billion) for military hardware, including a new Hr.26.54 billion (638 million) category for “special equipment,” and Hr.114.48 billion (2.751 billion) for personnel salaries.Link
• Other Defense Institutions: The Ministry of Internal Affairs will gain Hr.84.24 billion (2.024 billion), split among the Border Guard Service (Hr.45.9 billion, 1.1 billion), National Guard (Hr.24.5 billion, 589 million), and police (Hr.13.73 billion, 330 million). The Ministry of Strategic Industries and Main Intelligence Directorate will receive Hr.4.5 billion (108 million) and Hr.4.56 billion (110 million), respectively.Link
• Veterans and Military Education: The Ministry of Veterans will get an additional Hr.53.5 million (1.29 million), and military high schools will receive increased funding to support secondary education.Link

Civilian Spending and Reforms#

• Healthcare and Digital Transformation: The Ministry of Health will receive an extra Hr.2.77 billion (67 million) for state healthcare programs. The Ministry of Digital Transformation will gain Hr.6.43 billion (155 million), including Hr.2.77 billion (67 million) for an Innovations Development Fund and Hr.3.5 billion (84 million) for “special” innovative technologies, plus funding for the new PlayCity gambling regulator.Link
• Fiscal Reforms: The Finance Ministry allocated Hr.231 million (5.55 million) for customs reforms and Hr.182 million (4.37 million) for tax reforms to meet EU and IMF requirements. A crisis response fund will increase to Hr.20 billion (480 million), and the Ministry for Development of Communities and Territories will receive Hr.208 million (5 million) for energy efficiency projects.Link
• Prosecutor Wage Increase: A minimum wage hike for prosecutors was included to address inflation pressures reported since late 2024.Link

Risks and Opportunities#

• Risks: Severe cuts to non-defense sectors, like the State Special Communications Service (nearly defunded), education, and energy, could weaken critical infrastructure and governance. Increased domestic borrowing risks a “financial avalanche” of rising liabilities, potentially destabilizing the economy if external aid falters.LinkLink
• Opportunities: Prioritizing defense strengthens Ukraine’s resilience against ongoing Russian aggression, particularly in regions like Kharkiv. Debt restructuring and non-repayable loans provide fiscal flexibility, while targeted civilian investments in health, digital innovation, and fiscal reforms align with international aid conditions, supporting long-term stability.Link

Conclusion#

Ukraine’s Finance Ministry, constrained by stalled tax hikes and limited domestic borrowing, has strategically revised the 2025 budget to prioritize defense with an additional Hr.400 billion (9.7 billion), primarily through reallocations and increased borrowing. While defense institutions benefit significantly, cuts to non-defense sectors pose risks to civilian infrastructure. Targeted civilian spending and reforms signal a balanced approach to meet wartime demands and international obligations, with parliamentary discussions set for early July to finalize the amendments.