Kyiv – From the womb of war in its third year, the Ukrainian Parliament approved the state budget for 2025, and the President hastened Ukraine VolodymyrZelensky It was approved after about two and a half months of long discussions and many amendments.
This approval came with difficulty, as the budget deficit amounts to about 39 billion dollars out of about 94 billion dollars, or approximately 41% of it, without a clear horizon for international support to fill that deficit next year, according to observers.
Defense is a priority
Although the size of the budget is close to that allocated for the year 2024, the share of the defense and security sectors was set at about 61%, equivalent to approximately $54 billion, which is an increase of $8 billion over what it was in the years 2023 and 2024.
According to the Prime Minister’s Office, this includes financing the security and defense forces, purchasing and producing weapons, drones, and other military equipment. It appears that it came at the expense of other sectors, especially social care, whose budget declined from $11.4 billion to $10 billion, according to observers.
The approved draft budget also calls for austerity measures through:
- Reconsidering the pension system until the middle of next year, which consumes about $1.8 billion from the budget annually.
- A plan to cut the government aid program – whose budget is approximately one billion dollars – for at least 400,000 people.
Government assurances
As soon as the president approved the budget, officials rushed to reassure citizens and confirm that everything will be fine during the coming year.
Prime Minister Denis Shmyhal said, “The government is clearly confident that the next fiscal year will pass with confidence based on the cohesion of the branches of power and the strong support from our partners,” referring to the support of Western countries and the International Monetary Fund.
For her part, Roksolana Bedlasa, head of the Budget Committee in the Ukrainian Parliament, said, “The budget is reasonable because it focuses on defense and increases its expenditures depending on the state’s own revenues.”
She added, in an interview with Al Jazeera Net, that “the budget exempts hot spots from sending revenues to Kiev according to the financial centralization system, and on the contrary, it increases the amount of aid allocated to them.”
As for the budget deficit, Bedlasa explained that it was “determined on the basis of the urgent need, the promises of partners, and the experiences of the past two years.”
Negative indicators
However, the Ukrainian government itself did not hide negative indicators in its financial expectations for next year with regard to both the budget and the economy, the most prominent of which are:
1- Unlike the previous two years, the 2025 budget did not indicate an optimistic end to the war, but rather made it a reason justifying “measures aimed at protecting the country from dangers and collapse.”
2- The government expects the value of the local currency (hryvnia) to decline against the dollar from 41.5 to 45.0 as the war continues, or to remain at its current level “if the fighting stops,” and the exchange rate may stabilize at a lower level.
3- Despite its talk about the possibility of GDP growth by 2.7% during 2025, the government expects inflation rates to increase by 9.5% due to rising prices of raw materials, rising wages and tariffs for water, electricity and services, with a gradual decline in the value of the hryvnia.
Worst financial year
But some experts view the budget more negatively, and believe that Ukraine is on the cusp of the “worst financial year” in its modern history that it has not witnessed since it gained independence in 1991.
In an interview with Al Jazeera Net, expert Igor Elshishin, a member of the “Arha” Development and Investment Group, said, “The worst thing is that we are waiting for the arrival of a new American administration that is not enthusiastic about supporting Ukraine financially or for free, and we fear that this will be reflected in the positions of many Western capitals that are building… Its decisions are based on what Washington does.”
He added, “We face much greater challenges than before. The energy sector – for example – is the most damaged and repairing it is very expensive, but the budget did not take into account or cannot fully take into account this reality. This reflects on industries, and threatens them with stopping or increasing prices to levels that they may not be able to bear.” “Consumers.”
The expert also pointed out that “even the increase in average income expected in the government budget (from 500 to 600 dollars) carries with it negative indicators, as it is based on the fact that the state imposed a 1.5% military tax on institutions, and it may have to raise other taxes.”
He also said, “Many companies are forced to respond to reduce the shortage of male workers resulting from waves of mobilization in the army, but this will be reflected in prices and inflation rates, and may exceed the 9.5% barrier expected by the government.”
A difficult year of austerity
In the face of this reality, Kiev’s options seem limited to deal with its difficult financial crisis, but it has already begun taking measures and is planning others.
Expert Elshishin says, “Ukrainians may not have previously felt that their lives had changed because international aid, especially IMF aid or loans, was directed to all sectors. But this will not happen in 2025, as repairing roads, for example, will primarily come from state revenues, while aid will flow to… Budget Fund for its priorities.
The expert believes that the only way out is to implement government austerity, the features of which are apparent, and the continuation of “stable financial support, and this, fortunately, will be revealed early next year after Donald Trump comes to power in the White House,” he said.
