Budget 2025: back to harsh war reality

UKRAINE - In Brief 16 Sep 2024 by Dmytro Boyarchuk
On September 13th, the Cabinet submitted the draft spending plan for 2025 to parliament. The most notable aspect of the proposed budget is the allocation of UAH 2.2 trillion (nearly $53.8 billion at the current exchange rate) or 56% of central budget spending for defense, which is significantly higher than the UAH 1.7 trillion (~$41.0 billion) outlined in the initial spending plan 2024. It's worth recalling that the Ministry of Finance has faced harsh criticism for the 2024 budget, which was seen as insufficient for defense needs, covering defense spending only until mid-year. As a result, the Ministry is now seeking additional financing; defense needs must be covered from internal sources. The additional funding required is estimated at UAH 500 billion, and the Ministry has been discussing extra taxation (though the bill on tax increases has yet to gain parliamentary support). So, when we see UAH 2.2 trillion allocated for defense in the 2025 budget, it indicates that the Ministry of Finance is accounting for the realistic defense needs for next year (including the additional UAH 500 billion discussed for 2024), which is a positive feature of the draft budget for 2025. Apart from that, there aren't many positive aspects in the proposed spending plan. The Ministry of Finance anticipates the hryvnia will average 45 per U.S. dollar throughout the year (currently 41.3). Inflation is expected to accelerate to 9.5%, up from the 7.9% projected for 2024. Social spending remains unchanged or is even reduced. Taxes will likely be increased, although it’s unclear which tax plan will be supported, as the Ministry's proposed approach of introducing new taxes instead of raising VAT...

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