A $27 billion shortfall: Where will Ukraine get the money for the war?

Due to the nature of the defense budget, the Ministry of Defense used funds allocated for the end of the year earlier this year, resulting in a current deficit of $27 billion. According to the president, approximately $8–10 billion is needed to start the next year—specifically, to purchase everything the army needs—and another $20 billion this year for military salaries, payments to the families of those killed or missing in action, and other defense expenditures.

Sources speaking to “Shelter” say that the current situation is not unique, as for several years in a row, a budget deficit has emerged as fall approaches, forcing Ukraine to revise the budget and seek additional funds. The only thing unique about this year is the size of the budget shortfall. In 2024, the shortfall was about $12 billion; last year, it was about $17.5 billion; and this year, the additional need has already risen to $27 billion.

Will domestic resources be sufficient?

Ukraine is entering a new phase of war financing. The state’s domestic revenues are no longer sufficient to cover all military needs, which are growing every year.

“From January through July 2026, defense expenditures from the general fund of the state budget totaled 1.63 trillion hryvnias (about $37 billion)—nearly 20% more than during the same period in 2025, when 1.36 trillion hryvnias were allocated. This accounts for over 63% of the general fund’s expenditures,” says Roksolana Pidlasa, a “Servant of the People” MP and chair of the Verkhovna Rada Committee on Budgetary Affairs.

According to her, war-related expenditures are rising and will continue to rise as long as the active phase of the war persists. There are many reasons for this: from inflation to an increase in the number of service members in the Ukrainian Defense Forces, a rise in the number of military families receiving state support, and the need for weapons.

“In June alone, parliament increased spending on pay and weapons for the Defense Forces by 1.56 trillion hryvnias, including 174 billion hryvnias for pay within the Defense Forces. In addition, the budget also includes a special ‘defense reserve’ of 144 billion hryvnias and unused funds from other programs that can be reallocated to meet the military’s needs. “The government and parliament are constantly looking for ways to cover the deficit and are redirecting resources to defense,” Pidlasa noted.

Oleg Pendzin, executive director of the Economic Club, told “Shelter” that the current situation with additional funding for defense spending is not unique to Ukraine. According to him, in the second half of 2023, 2024, and 2025, parliament adopted amendments to the state budget, increasing spending on security and defense. At the same time, such amendments were made twice last year: first, spending was increased by approximately 350 billion hryvnias, and later by another 300 billion hryvnias—for a total increase of nearly 600 billion hryvnias.

This year, Penzin explains, the situation has become more complicated due to insufficient external funding at the beginning of the year. Kyiv did not receive the first tranche of the European support mechanism for Ukraine—90 billion euros for 2026–2027—until June. As a result, during the first five months of the year, security and defense expenditures—particularly the procurement of weapons—had to be covered largely by the state budget. In fact, according to the economist, the government was forced to bring forward to the beginning of the year funds that were originally planned to be spent later.

“For the first five months of the year, we financed security and defense—including weapons procurement—using funds from the state budget. In fact, we reallocated funds that had been earmarked for later months of the year to the beginning of the year because there were insufficient external resources to finance these needs during that period. And now, undoubtedly, a deficit has arisen,” explains Penzin.

A separate problem, in his view, is that domestic options for covering such a deficit have almost been exhausted. Previously, the government was able to offset additional defense spending through domestic borrowing via government bonds and by increasing tax revenues. This year, Penzin notes, it is difficult to count on a significant increase in tax revenues: businesses are already asking for tax breaks, and, more importantly, there is no certainty that even the planned level of revenue will be maintained.

“We are effectively stuck with the fact that Ukraine has practically no domestic reserves left,” says the economist.

How will Ukraine’s European partners come to its rescue?

“Without the support of Western partners, it will be a disaster,” Danylo Getmantsev, chairman of the parliamentary Committee on Finance, Tax, and Customs Policy, tells “Shelter.” According to him, financing the war will be extremely difficult without external support. Next year, Ukraine is set to receive approximately 45.3 billion euros in loans from the EU under the Ukraine Support Loan; in addition, there is the Ukraine Facility program, a program with the IMF, and a program with the World Bank. In other words, external support will be the main source of funding for defense needs.

During a meeting with journalists, Ukrainian Defense Minister Yevhen Khmara said that one of the top priorities will be to secure the European loan planned for next year as early as this year. At the same time, efforts will be made to engage countries that have not yet joined the European support initiative or that could increase their contributions. The Ministry of Defense has identified partners with whom it should hold separate discussions to secure additional funding for specific defense needs.

Yaroslav Zheleznyak, a member of parliament from the “Holos” faction, writes on his Facebook page that part of the necessary funding will not be received due to Ukraine’s failure to fulfill its obligations to its partners and accuses the president of inappropriate spending.

“How, knowing about this problem, could money have been spent on a marathon, a ‘yebachok,’ cashback, handing out 1,500 hryvnias, and even the ‘thousand-hryvnia’ campaign?” Who will bear personal responsibility for the fact that we have now failed to meet nearly 8 billion euros worth of obligations to the EU? Who from the Law Enforcement Committee will be held accountable for rejecting five laws at once, to which funding is tied (including this year’s)?” Zheleznyak writes.

According to economists’ estimates, Ukraine could receive an additional 10 billion euros by the end of the year. But for this to happen, the Verkhovna Rada and the government must “push through” numerous reforms, including: passing anti-corruption bills, a law to strengthen the anti-money laundering system, which will enable Ukraine to join the European SEPA payment system, a bill to reinstate competitive hiring for the civil service, and many others. The government has only a few months left to accomplish all of this.

“Let me remind you that we have numerous unfulfilled commitments to our international partners that must be implemented as part of the support. These are reforms under the Ukraine Facility, the IMF, and the World Bank programs,” says Penzin.

Another option for Ukraine to obtain additional funds that is consistently being considered is the use of frozen Russian assets, specifically the 210 billion euros held by the Central Bank of the Russian Federation. According to the Financial Times, Poland, the Netherlands, Spain, and Sweden have appealed to the European Commission to renew efforts to transfer these funds to Ukraine.

“It is time to launch a new discussion on how we can continue to use Russia’s frozen assets for the benefit of Ukraine and ourselves,” said Swedish Foreign Minister Maria Malmer Stenergård.

Last winter, this attempt failed because Belgium—where the vast majority of these assets, totaling 185 billion euros, are held—blocked the initiative. Sanctions lawyers explain that Belgium is not currently prepared to assume sole responsibility for the use of frozen Russian assets, as it risks finding itself at the center of large-scale legal disputes with Russia and potential financial claims. As a way out of this situation, the lawyers propose a legal division of liability among all EU members.

The only benefit Ukraine currently derives from the frozen Russian funds is the interest earned on them. The most recent tranche amounted to 1.4 billion euros: these funds were transferred to the EU on August 3 and allocated to support Ukraine.

“We are facing a situation where Europe and Ukraine have a serious financial problem. First, there is the 90 billion euros that the EU decided to lend to Ukraine in April. This covers only two-thirds of Ukraine’s budget. So one-third remains uncovered. That is a gap. There is no logic in leaving Russian money untouched while EU taxpayers face ever-increasing fiscal challenges," said Kinga Redłowska, head of the European division of the Center for Finance and Security (CFS Europe), in an interview with TVP World.

However, the full-scale confiscation of Russian assets will take years—or may not happen at all—due to bureaucracy and the fear of legal action from Russia. Therefore, Ukraine’s only options are support from Western partners and budget reallocation.

“Europe has allocated 90 billion euros, and we’ll receive these funds over the course of the year—there’s no question about that. The question is: what happens next? As of now, everything indicates that the war will continue for quite some time. Therefore, we must now seek new mechanisms to avoid facing a situation every year where we are forced to urgently seek funds,” Pendzin concludes.