The Minister of Finance of Ukraine Serhii Marchenko presented the 2025 Draft Budget to Ukraine’s lawmakers – the first draft of the budget for the next year the Ministry of Finance submits to the parliament according to the budget process procedure in Ukraine.
On Friday, Sept. 20, 2024, Marchenko presented the future budget as the draft Law of Ukraine “On the State Budget of Ukraine for 2025”, the Ministry of Finance press release says.
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“This is the third budget that we are presenting in the face of a full-scale invasion. The course of events also requires taking into account additional shocks and risks. But we can guarantee… ensuring defense and security,” Marchenko said in his speech to Ukraine’s lawmakers in the Verkhovna Rada.
The Chair of the Committee on Budget of the Verkhovna Rada Roksolana Pidlasa called it “The Budget of War.”
Ukraine will fully finance its defense needs of Hr.2.2 trillion ($53,66 billion), but the budget also consists of additional spending, especially on social wages ans support for business. The latter is tied to the financial aid from the West. And the West has only confirmed $15 billion out of the total $38.4 billion financial aid needed.
Ukraine’s defense spending increased substantially because of Russian aggression, and earning more revenues to finance the country’s budget with its own resources takes time. Still, Ukraine’s finance ministry has already raised some excise taxes and intends to raise more taxes while the International Monetary Fund pushes Ukraine to raise the VAT tax.
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“We hope that in the coming years, Ukraine will get access to $50 billion from frozen Russian assets. But the mechanism is still not agreed, and these funds are still not confirmed,” Pidlasa told Ukraine’s parliamentarians.
The start of the budget procedure
What Marchenko and Pidlasa presented in the parliament is the Ministry of Finance view on how to form the 2025 budget. It is not final and will be discussed in Rada. Parliamentarians will submit their suggestions to the Committee on Budget of the Verkhovna Rada and the budget can be adjusted.
However, lawmakers tend to propose amendments that usually add to expenses – the finance committee and ministry advised them not to do so since Ukraine is very limited on adding the revenues as fast as spending.
“We will study all proposals, but I must say the room for change is small. … If the State Budget expenditures for 2025 are significantly increased, we will face a new demand from the International Monetary Fund to increase VAT tax,” Pidlasa warned the parliament.
Ukraine’s lawmakers need to submit proposals on how to change the budget until Oct. 20 this year.
Ministry of Finance sees economy’s future more pessimistic than both the IMF and the National Bank
The country’s number one priority is defense and war – Hr.2.2 trillion ($53.66 billion). These funds will cover salaries of the military and the state’s spending on food for the army, weapons and ammunition purchase and “everything that our Armed Forces and other military units need,” according to Marchenko.
The government’s view of the real GDP in 2025 is the most pessimistic. The 2025 Draft Budget states the real GDP will comprise 2.7%, whereas Ukraine’s National Bank forecasts 4.1% and the IMF forecasts 6.5%.
It also plans a higher inflation rate of 9.5% – the Ministry of Finance did not state whether this is an end-of-the-year inflation or average for 2025. Ukraine’s National Bank plans 9.7% only for the first quarter of 2025, with inflation decreasing to 6%.
But the average salary is projected as Hr. 24.389 ($542). However, the ministry plans a more devalued hryvnia for 2025 – 45 hryvnias per dollar.
The budget deficit for 2025 is projected at 19.4% of GDP – almost 5% less than in 2024. Debt should also be lower – 97% of GDP compared to 100.5% this year. Part of this decrease is thanks to a complex process of debt restructuring the Ministry of Finance negotiated with the holders of Ukraine’s external debt in Eurobonds.
Overview of Ukraine’s planned revenues and major spending
The Ministry of Finance view is that Ukraine will earn Hr.2.7 trillion ($48,95 billion) – Hr.411 billion ($10 billion) more than revenues for 2024.
Ukraine’s plans to generate most revenues from taxes:
- Value-Added-Tax on imported goods – Hr. 594 billion ($13.20 billion)
- Personal income tax – Hr. 354 billion ($7.9 billion)
- Value-Added-Tax on goods manufactured inside Ukraine – Hr. 318 billion ($7 billion)
- Corporate income tax – Hr. 206 billion ($4.58 billion)
- Excise tax on manufactured goods – Hr. 132 billion ($2.93 billion)
- Excise tax on imported goods – Hr. 115 billion hryvnias ($2.6 billion).
Though Ukraine increased revenues compared to pre-invasion 2021, it is still not enough to cover the spending needs. The Finance Ministry estimated them at Hr.3.644 trillion ($81 billion) – half a trillion more than spending in 2024. This spending is from Ukraine’s wallet – not a penny is spent from the cash Ukraine gets from the global financial aid.
Less than a third of GDP is allocated to defense spending – the majority of this is the salaries of the military. Ukraine will spend Hr.1.2 trillion ($26 billion) to pay salaries to more than a million personnel serving in the military – both the front line and the rear of the armed forces.
The Finance Ministry plans to spend less than half of the trillion for social wages, pensions and subsidies. A bit more than half of this amount is planned to cover pensions for the retired.
The rest is planned to be spent on wages for the most vulnerable and disabled, subsidies that help the vulnerable pay for expensive utility bills. State support for veterans is also planned and this includes rehabilitation of mental and physical health of the former servicemembers, a state program that will help them adapt in the civilian workplace.
Two other state programs include dental prosthetics and a program that helps the servicemembers who serve in the armed forces keep their reproductive cells for free for three years after their death. Also, money for the Ukrainian veteran fund that provides investments for military startups is in the plans.
Healthcare is planned to comprise Hr. 217 billion ($4.82 billion) of spending, whereas the education sector should get Hr.175 billion ($3.9 billion) – this includes teacher’s salaries, state funding of the schoolbooks, state grants for students and food provision to schools.
It is unclear whether constructing roads in 2025 is political populism or military need
Serhii Marchenko explained that the Ministry of Finance plans to spend another Hr.256 billion ($5.7 billion) on investment projects. What caused debates in the parliament is the Hr.43.2 billion ($960 million) the government planned to spend on the repairs and construction of the roads in the country.
“I do not support funding for the roads in the 2025 budget. I’m not against roads. I believe that if it is necessary to build roads at the request of the military, then it should be done,” Pidlasa commented in Rada referring to the intention to finance roads – an initiative President Volodymyr Zelensky is proud of since 2019, when he established a campaign of road construction around the country.
The government also laid out the plan to finance the culture sector, scientific research, funding for sportsmen, diplomatic institutions and the court system. Funding for concessional loans for business “5-7-9% loans” and grants for business is also laid out.
The International Monetary Fund reviewed the presented figures and approved them, Marchenko said.
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