KIEV, Ukraine – The Ukrainian Parliament on September 18th approved a revised budget bill,adding 500 billion hryvnias (approximately $12 billion) to government spending. The majority of this sum will be allocated to bolstering Ukraine’sdefense capabilities, pushing the country’s annual budget expenditure to an unprecedented level.
This significant budget adjustment comes as Ukraine continues to grapple with the ongoing conflictwith Russia. According to Ukrainian media reports, the additional funding will increase the total budget expenditure for the current fiscal year by 13%, reaching 3.73 trillion hryvnias (approximately $90 billion).
Tooffset the increased defense spending, the Ukrainian government plans to implement a series of tax measures. These include raising the war tax levied on citizens from 1.5% to 5% and introducing additional war-related taxes for individualentrepreneurs and small businesses. The government also intends to secure further loans from the domestic debt market.
Furthermore, Ukraine has reached an agreement with international creditors to restructure its external debt, exceeding $200 billion. This restructuring will reduce repayment obligations by $114 billion over the next three years.
Ukrainian Prime MinisterDenys Shmyhal explained that the original 2024 budget allocation for the war effort was only sufficient to cover expenses until the end of August. However, the need to pay September salaries to troops on the front lines necessitated the budget revision.
The influx of Western aid and loans has led to a surgein the circulation of the hryvnia, resulting in a depreciation of the Ukrainian currency against the US dollar by approximately 8% and against the euro by nearly 10% since the beginning of the year. The 2025 budget draft anticipates a further depreciation of the hryvnia by around 8%.
The decision to prioritize defense spending has sparked debate within Ukraine. Some citizens express concern that the funds could be better utilized for reconstruction and development efforts. However, the government maintains that the ongoing conflict demands a significant investment in defense to protect the country’s sovereignty and territorial integrity.
The Ukrainian government’s decision toallocate a substantial portion of its budget to defense reflects the ongoing challenges posed by the conflict. While the country seeks to rebuild and recover, the need to secure its borders and defend against potential threats remains a top priority. The long-term impact of this significant budget increase on Ukraine’s economy and its ability to rebuild remains to be seen.
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