Ukraine’s Draft 2027 State Budget Envisages UAH 1.67 Trillion Deficit, KSE Institute Says

The Draft State Budget 2027 envisages a UAH 1.67 trillion deficit, while Ministry of Defence spending is set to rise to UAH 3.76 trillion – KSE Institute analysis Ukraine’s Draft State Budget for 2027 is based on the assumption that the full-scale war will continue throughout next year. The Government expects real GDP growth of 1.3%, average inflation of 8.6%, and an average exchange rate of UAH 47.1 per US dollar. The framework depends heavily on the timely receipt of $91.6 billion in external financing. The Government also acknowledges that the forecast approved in early June does not yet fully reflect the impact of the destruction caused over the summer and may be revised ahead of the second reading. These findings are presented in KSE Institute’s analytical review, “Draft State Budget 2027: Priorities, Risks, and Opportunities.”JOIN US ON TELEGRAMFollow our coverage of the war on the @Kyivpost_official. Defence and security remain the top priority. Spending under the Ministry of Defence’s budget programs is planned at UAH 3.76 trillion — UAH 318.3 billion, or 9.2%, more than under the amended 2026 plan. The increase was made possible primarily by incorporating the second €45 billion tranche of the Ukraine Support Loan (USL) into the budget. At the same time, the allocated funding may prove insufficient if decisions are made to increase military pay, introduce additional financial incentives for military service, or expand procurement of military equipment and weapons. Other Topics of Interest Kremlin Says Too Early to Discuss Putin’s G20 Trip After Welcoming US Invitation Rubio previously said the invitation to December’s summit in Miami should not be read as a sign that a meeting between the leaders is imminent. State budget revenues are expected to rise to UAH 5.65 trillion, including UAH 2.86 trillion in tax revenues and UAH 2.49 trillion in international assistance. UAH 117.3 billion in projected revenues still depends on amendments to tax legislation, while another UAH 64.9 billion is expected from reducing customs duty evasion and will reach the special fund only if customs revenues exceed the target. The state budget deficit is expected to rise to UAH 1.67 trillion, or 15% of GDP, compared with an estimated UAH 1.25 trillion, or 12.4% of GDP, in 2026. State and state-guaranteed debt could reach 113.9% of GDP by the end of 2027. Of the $38.7 billion in external loans planned to finance the deficit, $32.6 billion currently has no confirmed financing sources or corresponding commitments from partners. A shortfall in the required volume of external financing therefore remains the main risk to fiscal stability. Local budget resources are expected to increase to UAH 1.06 trillion in 2027, while the share of interbudgetary transfers in local budget revenues is expected to rise by 5.5% to 33%. The Government also proposes reducing the share of personal income tax allocated to local budgets from 64% to 60% and providing a targeted UAH 18.2 billion subvention to cover accumulated tariff differences. Under the adverse scenario, an energy supply deficit of 30–50%, a 20–40% decline in goods exports, and a loss of 350,000–450,000 employed people could reduce real GDP by 4.1–6.8%, while consolidated budget tax revenues could fall UAH 140–230 billion below the baseline forecast. The full report can be found here. KSE Institute is an analytical center at the Kyiv School of Economics. In 2005, KSE / EERC and the Stockholm Institute of Transition Economics (SITE) established the Kyiv Economics Institute (KEI) to provide scientific economic facts for economic policy-making and changing the policy-making process based on data and facts. Since the beginning of the full-scale invasion, KSE Institute analysts have focused on key wartime projects (LeaveRussia, participation in the Yermak-McFaul International Sanctions Group, Reconstruction projects), actively cooperating with the Ukrainian government in assessing damages, the effectiveness of sanctions against the aggressor and the development of scenarios for the recovery of Ukraine’s economy after the war.