Ukraineʼs budget situation is the worst since the start of the full-scale invasion
There is a big hole in the Ukrainian budget. Due to Russian shelling, the state budget may lose approximately UAH 70 billion in taxes. This amount may increase, because the shelling continues.
On September 4, the Finance Minister Serhiy Marchenko told Euronews that Ukraine had not faced such a shortage of money in its budget accounts since 2022.
At the end of September, Ukrainian Prime Minister Koretsky clarified that defense needs the most money — it is short by $27 billion this year. The government plans to find approximately $7 billion through savings, cuts, and redistribution of other expenditures, and the remaining $20 billion will be raised from partners.
The Ministry of Finance has already postponed until December the financing of construction, renovations, and other capital projects worth almost UAH 39 billion. The available funds are being directed primarily to defense, pensions, social benefits, and salaries of state employees.
On September 15, the government approved and submitted to the Verkhovna Rada the draft state budget for 2027, presented by Finance Minister Serhiy Marchenko.
Facebook / Sergii Marchenko
The high cost of the war is not the only reason for the crisis. According to Koretsky, the situation was also worsened by the fact that some of the international money did not arrive on time, in particular because Ukraine did not fulfill certain obligations to its partners.
Ukraineʼs main donors are three structures: the International Monetary Fund, the European Union, and the World Bank.
Babel has already talked about how they are interconnected.
On September 22, on the sidelines of the UN General Assembly, Volodymyr Zelensky met with European Commission President Ursula von der Leyen.
According to Bloomberg, the conversation was tense. Kyiv asked for help to close an unforeseen shortfall in defense funds and accelerate payments on an EU loan of €90 billion. After the meeting, von der Leyen wrote in X that defense support would be forthcoming soon, and budget support would come as the Verkhovna Rada advances reforms.
According to her, by the end of 2026, the EU was to provide Ukraine with another €37 billion in defense and budget support.
Some of this money is already coming in. On October 2, Ukraine received €2.9 billion under the “Ukraine Facility”. This is already earmarked funding, which the EU provided after Ukraine fulfilled 10 agreed indicators in various areas — from the banking sector and energy to agricultural policy and transport.
The fact that Ukraine is lagging behind in implementing the reforms it promised the European Union is discussed almost daily in Brussels.
On September 14, European Commissioners Valdis Dombrovskis and Marta Kos sent letters to the Speaker of the Verkhovna Rada Ruslan Stefanchuk, and the Prime Minister Serhiy Koretsky, with a list of laws that Brussels expects from the Ukrainian authorities.
The letters state that more than €20 billion in EU aid remains available until the end of the year, provided that reforms are implemented, and that a number of laws still need to be passed to receive €8 billion of this amount.
The letters came in response to Ukraine’s request to help cover an additional $27 billion in defense needs.
Meeting of the Minister of Finance of Ukraine Serhiy Marchenko (left) with the European Commissioner for Economic and Financial Affairs Valdis Dombrovskis on the eve of the meeting of the Donor Coordination Platform of Ukraine, September 29, 2026. Serhiy Marchenko and European Commissioner for Enlargement Marta Kos.
X / Valdis Dombrovskis; X / Marta Kos
On October 1, the European Commission and Ukraine reported that they had agreed on how to cover Ukraine’s budgetary and defense needs for 2026 and how to “move swiftly” with the allocation of €45 billion under the “Ukraine Support Loan” for 2027.
To receive these funds on time, Ukraine must fulfill the conditions and obligations related to reforms agreed with the EU. Representatives of the government and the European Commission agreed to meet monthly to agree on financing needs and coordinate further actions.
The European Commission did not specify how much of this amount would be allocated to defense needs and how much to budget needs, and according to what schedule the funds would be received.
So what exactly does Ukraine have to do to get this money? What problems have arisen now?
Ukraine will receive $29.5 billion if it adopts the necessary laws by October 15 (but this is not certain)
According to the Prime Minister Serhiy Koretsky, $29.5 billion in funding currently depends on how Ukraine fulfills its obligations to partners. Kyiv is already late with some of these obligations.
After an express audit of public finances, the government identified 42 overdue obligations that depend on the Cabinet of Ministers. The government has set itself an internal deadline of October 15.
As of September 30, 17 of the 42 planned decisions have been implemented. The rest are still being finalized.
The Prime Minister of Ukraine Serhiy Koretsky says that the need for financing remains critical. A part of the defense request of $27 billion is needed now to prepay for supplies that are due to arrive in the first quarter of 2027.
Facebook / Сергій Корецький
But part of the work also depends on the Verkhovna Rada. Draft laws must not only be registered and voted on in a timely manner, but also be pre-coordinated with international partners and relevant committees of the Verkhovna Rada.
If the parliament adopts a law in a wording that does not comply with the agreements with the partners, this will not mean automatic fulfillment of the condition. The partners may not count such a law and not provide the corresponding funding.
It’s not just the Ukrainian government that is talking about this risk. In a July report, the International Monetary Fund noted that the pace of structural reforms in Ukraine has slowed, in part because important laws are stalled in parliament.
Therefore, the government is now trying to simultaneously close its part of the obligations and help the parliament prepare and adopt the necessary laws. And on October 12-13, the Verkhovna Rada is to consider a significant number of draft laws related to the “Ukraine Facility” and macro-financial assistance programs.
One of the main creditors is IMF, with which Ukraine signed a memorandum for $8.1 billion. Kyiv has proposed to the Fund reforms in many sectors of the economy: tax legislation, customs, corporate governance of state-owned banks, anti-corruption system and energy policy.
Babel has already written about this before (here and here).
An IMF mission regularly visits Ukraine to check how it is fulfilling the terms of the financing program. The last time the Fundʼs representatives — led by Gavin Gray — arrived in Kyiv was on August 28.
The focus of the talks was on the economy, reforms, and the budget for next year.
Meeting with the IMF mission led by Gavin Gray in Kyiv, September 4, 2026.
X / G7AmbReformUA
Following the meeting, the head of the Verkhovna Rada Budget Committee Roksolana Pidlasa said that $1.66 billion from IMF is now at risk. This is because Ukraine has not fulfilled the structural beacons, the deadline for which was in June.
At the same time, there were delays in fulfilling some of the obligations for August and September. According to the memorandum, the state should:
- levy taxes on income from digital platforms (the so-called “OLX tax”) — the parliament approved the document back in June, but the president has not yet signed it;
- to collect VAT on foreign parcels worth up to €150 — the Verkhovna Rada adopted the relevant draft laws in the first reading, but the law has not yet been finally adopted;
- increase to UAH 1 million the threshold at which unscheduled inspections can be conducted in the event of a budget refund or negative VAT, has not yet been implemented.
A separate obligation concerns the National Agency for the Prevention of Corruption (NAPC). It must approve rules for checking declarations by risk level in order to first check high-ranking officials in areas with the greatest corruption risks. These rules do not yet exist.
According to NAPC, in September the agency already prepared their drafts and discussed them with the public.
Not only direct financing from IMF, but also part of macro-financial assistance from other international partners (in particular, the European Union) depends on how Ukraine fulfills these cooperation conditions.
According to European Commission spokesman Guillaume Mercier, among the urgent reforms the EU expects from Kyiv is the so-called “Kachka-Kos Plan” (named after former Deputy Prime Minister Taras Kachka and European Commissioner Marta Kos, who signed it in late 2025).
It is a 10-point list that demands progress in reforms in the area of the rule of law and the fight against corruption.
The EU Intergovernmental Conference in Brussels, at which European Integration Cluster 6 "Foreign Relations" was opened for Ukraine, July 14, 2026.
Facebook / Taras Kachka
The “Ukraine Facility” tranches are paid for completed steps — if a step is not credited, the corresponding part of the payment is delayed or reduced. This has already happened with the eighth payment to Ukraine of almost €3 billion. Ukraine has completed 10 steps in various areas — from the financial sector and business environment to energy, transport, agricultural policy and environmental protection.
However, the step related to the human resources management information system was not recognized by the European Commission as completed. That is why the payment was partial.
According to the rules of the “Ukraine Facility”, Ukraine has up to 12 months from the negative assessment to complete this step and receive the blocked part. If this does not happen, the European Commission may propose to permanently reduce the payment.