Economic review in December 2025. Will Ukraine have enough money in the 2026 state budget?

Since March 2022, the Centre for Economic Strategy (CES) has been preparing monthly reviews of Ukraine’s economy during a full-scale war.  The special topic of the November review is: «State budget for 2026: will Ukraine have enough money?».

All previous reviews can be found under the link.

Key changes in the Ukrainian economy in December:

• Monetary sector: Inflation decreased to 9.3% y-o-y, with disinflation stronger than both NBU and private forecasts. Food inflation continues to ease due to high harvest surpluses and lack of storage. Core inflation eased more slowly while inflation expectations remain in the double digits. In its December decision, the NBU held its key policy rate at 15.5% in face of foreign funding uncertainties. The corporate credit growth is record high.
• Sectoral analysis: Real GDP growth accelerated to 2.1% y-o-y in Q3 2025, driven by government consumption and investment. The economy was also supported by steady consumer demand and a stable energy situation. However, the situation in the energy sector essentially deteriorated in Q4 2025 and has since had a restraining effect on the economy, while the pace of harvesting has accelerated, supporting agricultural production.
• Special topic: Budget-2026. Internal revenues are not high enough: even with nominal deficit of 18.5% of GDP expenditures are underfunded. Ukraine is maximising budget revenue collection: own revenues will increase by 121% in 2026 compared to 2021. War expenditures remain a budgetary priority. In 2025, war expenditures are expected to be 32% higher than in 2024. But in 2026 not enough money budgeted for the war and less than in 2025. This is accompanied by an expected increase in non-defence spending. Still, spending grows only nominally: non-military expenditures are effectively frozen while war spending is insufficient.

See our report below for further details.

Panelists:

• Olena Bilan, chief economist at Dragon Capital investment company and member of the CES supervisory board.
• Roksolana Pidlasa, chairman of the budget committee of the Verkhovna Rada.
• Nataliia Pipa, secretary of committee on education, science and innovations of the Verkhovna Rada.

Moderator: Hlib Vyshinsky, Executive Director, Centre for Economic Strategy.

Key takeaways:

For the next year, the government has allocated 2.8 trillion UAH for defense and security needs, which is the same amount we were supposed to spend this year according to the summer amendments to the budget.

However, the latest increase in defense spending by another 325 billion UAH, financed with €6 billion from the proceeds of frozen Russian assets, has not been taken into account for the following year.

That’s what Roksolana Pidlasa, head of the Verkhovna Rada’s budget committee, told us:

«The Cabinet and the Ministry of Finance allocated 2.8 trillion UAH for defense needs. They allocated it at the 2025 level without the latest changes to the budget of 325 billion UAH, which included a very extraordinary source — ERA Loans funds from the EU. […] Therefore, it is obvious that if the war continues next year, 325 billion UAH will need to be added. I said during the consideration of the budget in the Verkhovna Rada that the probability of changes to this budget is 95%.»

The budget faces risks in terms of revenue due to an overly unrealistic exchange rate forecast.

However, the funding gap for the next two years will be covered by assistance from partners, including €90 billion from the EU.

This was noted at the event by Olena Bilan, chief economist at investment company Dragon Capital and member of the CES supervisory board:

«There is the issue of the exchange rate, which is also set at 45.7 UAH/USD in the budget. Our forecast for next year’s average annual exchange rate is 42.8 UAH/USD, which is certainly far from the forecast in the budget. And there is a risk of shortfalls in revenues that depend on the exchange rate. At the same time, credit should be given to the government: the budget includes safeguards that allow for compensation for possible shortfalls. These include, in particular, inflated debt servicing costs, as well as the inclusion of net domestic debt repayment, which is atypical for the state budget law — this scenario is unlikely, but it creates a fiscal reserve. Ultimately, this means that the budget will most likely be implemented.

However, the law will still have to be revised to bring revenues and expenditures in line with the real situation. And here the question arises: why not set more realistic or conservative indicators right away to avoid constant amendments and have a budget that is more transparent and easier to analyze?»

They also discussed another important change in the 2026 budget: additional funding for education.

Natalia Pipa, secretary of the Verkhovna Rada Committee on Education:

«The average salary for educators was 13,000 UAH, the lowest of any industry. This is a major reason why people are leaving education. […] Therefore, the government added 53 billion to the 103 billion UAH education subsidy for salaries and called it a prestige subsidy. But these funds are essentially a stopgap solution. They prevent a nominal drop in salaries, but do not address the underlying problem: under the current pay scale, new teachers still have no economic incentive to come to school.

According to the law, the budget for education and science should be 7% of GDP. Today, it is 2.7%. Of course, there is a reason for this — our budget has changed significantly due to the war. Today, we spend as much on defense as we spent on the whole country before the war,»

This event has been funded by UK International Development from the UK government; however, the views expressed do not necessarily reflect the UK government’s official policies.