Ukraine Submits Record 2027 Budget as Finance Minister Warns of Cash Strain

Finance Minister Serhiy Marchenko presented the draft 2027 state budget to parliament on Tuesday, warning that Ukraine could run short of cash before the end of 2026. The proposal is Ukraine’s fifth wartime budget and calls for record spending of more than Hr.7 trillion (about $160 billion). The financing plan comes as Kyiv faces growing wartime pressure.JOIN US ON TELEGRAMFollow our coverage of the war on the @Kyivpost_official. The budget assumes Russia’s full-scale invasion will still be underway throughout 2027, as Marchenko said the government based its projections on expectations that fighting will not only persist, but intensify. The budget has been submitted to parliament as a bill which lawmakers must approve in a first reading before proposing any amendments. It should then return for a second and final vote, and if passed, will become the government’s financial plan for 2027. Taxes, foreign aid, and frozen Russian assets Continued Russian strikes, destruction of warehouses and logistics routes, and blocked ports have curbed business activity, resulting in the government to forecast a Hr.70 billion ($1.6 billion) shortfall in tax revenues by the end of 2026, Marchenko told lawmakers in parliament. At the same time, Ukraine expects to require $52 billion in budget aid from foreign partners. Funding sources have been identified for only $19.4 billion of that amount, leaving a $32.6 billion gap. Defense spending will comprise 43.8% of GDP in 2027. The ministry also factored in the risks ahead of the next heating season, including further Russian attacks on energy infrastructure and a persistent shortage of air defense equipment. Other Topics of Interest Ukraine Suffers More Civilian Deaths in 8 Months of 2026 Than All of 2025 – UN The report attributes the leading cause of civilian deaths to be long-range drones and missiles, as Ukraine has faced unprecedented Russian drone and missile strikes this year. As for inflation, the budget forecasts it at 8% next year. It also projects an average exchange rate of Hr.47.1 to the US dollar, broadly in line with estimates of independent economists and the National Bank of Ukraine (NBU) – a rarity for government forecasts. Marchenko said Russian assets remain the government’s primary option for covering the budget deficit beyond existing international assistance programs. According to him, Ukraine is discussing both the use of assets as collateral and the possibility of securing another loan backed by windfall profits generated from these assets.“The most fundamental and promising source is the management of frozen Russian assets, and, potentially, avenues for the securitization of frozen Russian assets. We are also exploring the possibility of structuring the so-called Extraordinary Revenue Acceleration Loans-2, which we are currently working on. But we are not only working with external sources – we are also working with internal ones. The intergovernmental group on de-shadowing the economy is stepping up its efforts,” Marchenko said. He thanked parliament for passing in the first reading a long-delayed bill that would tax low-value parcel imports, and urged lawmakers to adopt it. Along with other revenue measures, Marchenko argued it would support domestic producers and become a fiscal necessity. However, lawmakers must still approve several other reform bills. Ukraine has 13 outstanding benchmarks dating from late 2025 through mid-2026, leaving about $4 billion frozen in macro-financial assistance for 2026. The delay is not only from lawmakers. At the time of publication, legislation on taxing revenues from online platforms was still awaiting the president’s signature. The draft budget introduces several new policies, including the partial restoration (25%) of the State Road Fund, worth more than $1 billion. The measure has long been a subject of debate in parliament, with supporters arguing the funding is needed to maintain roads used by the military or meet obligations for previously contracted projects. While the state’s debt to private road companies exceeded Hr.12 billion ($272.7 million) as of December 2025, the same companies who are now building the roads were those accused of running a cartel on state procurement in 2021, blocking other firms from winning tenders. Separately, Hr.18.2 billion ($386 million) is earmarked to compensate regions for the gap between the economically justified cost of utility services and the tariffs households actually pay, easing the financial burden on communities and residents. Defense takes nearly half of GDP Ukraine’s allocation to defense against Russia takes another toll in 2027, as the total resources for the sector are set at Hr.4.9 billion ($108.9 billion), up 11.9% from the 2026 revised plan. Defense alone accounts for 67.2% of all general state budget expenditures, leaving only a small share of financial resources to be patchworked into civil aims and social wages. (Source: Ministry of Finance of Ukraine) The share of GDP allocated to defense has increased every year since the start of Russia’s full-scale invasion, rising from 38.8% in 2024 to 42.9% in 2025 and 43.2% under the revised 2026 budget. This year, weapons and military equipment now account for the largest share of defense spending, with more than Hr.2 trillion ($44.8 billion) being allocated to that category, while nearly Hr.1.8 trillion ($40.4 billion) is earmarked for military salaries. This marks a shift. Military wages used to be the largest share, but now the budget reflects more spending on weapons. More than Hr.700 billion ($15.7 billion) is allocated to other defense needs, including reserve funds. Apart from 2027 financing, the government must also address a $27 billion defense funding gap this year, according to Prime Minister Serhii Koretskyi. (Source: Ministry of Finance of Ukraine) Additionally, Hr.10.1 billion ($214 million) goes to the Innovation Development Fund, which backs defense tech through Brave1, along with new equipment, robotics, unmanned systems, and research and development on special technologies. A record $162 billion budget The total 2027 spending is set at a historic high of Hr.7.3 billion ($162.1 billion), up 13.5%, or Hr.864.9 billion ($19.3 billion), from last year. Revenue is projected at Hr.5.7 billion ($125.9 billion), with Hr.2.5 trillion ($55.6 billion) covered by foreign aid – EU’s Ukraine Support Loan, Ukraine Facility, and Extraordinary Revenue Acceleration from Russian asset profits. The rest, Hr.3.2 trillion ($70.3 billion), should be covered by internal revenues. Apart from signs of declining business tax revenues, Ukraine is also losing Hr.97 billion ($2.2 billion) in expected budget resources in 2027 as the government lowers the share of NBU profit it draws down. As parliament votes to tax import transactions required for partners, customs revenue is expected to rise to $23.1 billion. At the same time, the finance ministry still projects lower taxes due to weaker business activity. Revenue administered by the State Tax Service is projected to decline by Hr.79 billion ($1.8 billion) to Hr.1,307 billion ($29.1 billion). The decrease is also partly the result of an accounting change. Under the draft budget, Hr.217 billion ($4.8 billion) in military levy revenue will be directed to the special fund, meaning those proceeds will no longer be reflected in the general budget estimates. The deficit is set to widen to 15% of GDP, up from 12% under the revised 2026 plan. Along with this, public debt is projected to reach Hr.12,307 billion ($274.3 billion) by the end of 2027, compared with an expected Hr.10,146 billion ($226.1 billion) at the end of 2026. This is approximately twice as much as the public debt recorded in 2023-24. An infographic by the KSE Institute's Center for Public Finance and Public Governance Analysis breaks down key findings from its review of Ukraine's 2027 draft state budget. Image provided to Kyiv Post by KSE Institute's Center for Public Finance and Public Governance Analysis. Kyiv supports businesses struggling from Russian bombardment Since early August, Russian forces have intensified systematic long-range strikes targeting Ukraine’s civilian commercial infrastructure, industrial facilities, and private supply chain networks. However, now the state is looking for ways to support the entities financially amidst immense needs for direct fighting. State support for businesses is set to increase to Hr.96 billion ($2.0 billion) in 2027, around 50% higher than under the 2026 plan. Kyiv will spend Hr.29 billion ($616 million) compensating interest rates on B2B loans and government guarantees for borrowers’ assets in frontline territories under the National Development Institution’s affordable 5-7-9% loans and guarantees. Separately, the government has allocated Hr.58.7 billion ($1.2 billion) for war-risk insurance and other forms of support for businesses, potentially funded with an increase in the value-added tax (VAT) rate by one percentage point, from 20% to 21%. However, such a change would require separate legislation. Another potential source would be the funding from the World Bank’s Special Program for Ukraine Recovery (SPUR). Ukraine is also seeking to establish a First Loss Fund to support war-risk insurance for businesses. According to Economy Minister Oleksandr Kravchenko, the government aims to raise about $1 billion domestically and secure at least another $1 billion from international partners, with the potential to unlock an additional $2-3 billion in financing. Another Hr.8.3 billion ($176 million) is planned to protect fuel-sector enterprises from the same risks, potentially financed through a higher fuel tax. The draft budget also allocates almost Hr.100 billion ($2.1 billion) to protect and restore energy infrastructure, increase wages for energy-sector workers, and support the coal industry. That includes plans to make the cities more energy resilient in the face of future Russian strikes, with additional resources to be redirected from a lower mandatory dividend payout norm. Social expenditures beyond defense Social spending is set to exceed Hr.500 billion, including higher payments for pensioners, and allocating Hr.540 billion ($12.0 billion) to the Social Policy Ministry. In addition, three off-budget social insurance funds covering pensions, unemployment benefits, and disability payments are projected to spend a combined Hr.1,311.4 billion ($29.2 billion) in 2027. The budget also earmarks Hr.45 billion ($955 million) for the government’s eOselya concessional mortgage program where loan rates are lower than market mortgage rates. Veteran policy spending is set to be at Hr.20.5 billion ($435 million) which includes payment programs, recovery and rehabilitation measures, psychological support, professional adaptation, case support specialists, state veteran spaces, and the Ukrainian Veterans Fund. Another part covers housing compensation for disabled veterans in groups I and II. Kyiv will keep allocating costs to support internally displaced persons (IDPs), who will receive Hr.83.2 billion ($1.8 billion) in support next year. The largest share, Hr.39.6 billion ($841 million), goes to living allowances for IDPs, followed by Hr.12 billion ($255 million) for temporary housing support and Hr.11.5 billion ($244 million) to compensate for destroyed property. The remainder is split among social services, the “HOME” destroyed-housing program, eOselya mortgage assistance, employment programs, and compensation for damaged homes under eVidnovlennya. Education spending rises to Hr.328.5 billion ($7.3 billion), with teacher salaries set to climb 65% from 2025 levels to an average of Hr.27,300 ($608) per month. Healthcare spending reaches Hr.292.5 billion ($6.5 billion), which the finance ministry said is enough to raise average pay for doctors in specialized care to Hr.30,000 ($669), including for nurses to receive Hr.20,000 ($446) per month. Ukraine will spend Hr.6.85 billion ($145 million) on sports and youth policies in 2027, with most going toward supporting Ukrainian sportsmen in international competitions. A smaller allocation of Hr.201.5 million ($4.3 million) will be given to youth self-realization programs, including 1,800 youth grants. For the first time, Kyiv will provide direct state funding to the Plast scouting movement, allocating less than Hr.100 million for the program. The Plast is an entity founded in 1911 that encourages youth to get physically fit, promotes outdoor skills, and inspires kids to learn about art, history, and the political culture of Ukraine. Local budgets are projected to exceed Hr.500 billion ($23.1 billion) in 2027. Growth will be supported in part by two new funding streams: compensation for the gap between regulated heating tariffs and their actual cost, and a subvention for local road repairs. “The budget is complex, but together we will find a way to fulfill it,” Marchenko told lawmakers, asking parliament to consider the budget bill. Kyiv Post disclaimer: All hryvnia figures in this article have been converted into US dollars using a rate derived as the arithmetic average of three figures: NBU’s exchange rate at the time of writing (Hr.44.6), the finance ministry’s own expected average rate for 2026 (Hr.44.6), and the exchange rate the finance ministry forecasts for 2027 in the submitted budget (Hr.45.4) – a blended rate of Hr.44.87 to the US dollar.