Financial Capacity of Ukraine and Projected Allied Support in 2024

Source – Reuters

Financial and military assistance to Ukraine is an investment in the security of the civilized world. A reduction in the volume of allied assistance could be decisive for Ukraine in 2024. The analytical department of the Ukrainian Centre for Security and Cooperation has prepared a comprehensive forecast of Western assistance and Ukraine’s financial capacities based on open sources.

UKRAINE’S WAR BUDGET

The full-scale invasion has dealt critical blows to Ukraine’s economic sector: occupied territories in the east and south, blocked maritime trade, labor outflow abroad, and strikes on critical infrastructure have worsened the country’s macroeconomic situation. Financial support from allied countries remains critically important to ensure Ukraine’s stable functioning under wartime conditions, as it was throughout 2023.

In 2024, under the state budget law, revenues are projected at UAH 1.7 trillion ($45.9 billion). Expenditures and lending are set at UAH 3.3 trillion ($87.7 billion).

The largest budget item remains security and defense spending. In 2024, UAH 1.6 trillion ($43.2 billion), or 21.6% of GDP, is planned for this sector, of which UAH 1.16 trillion ($31.3 billion) will go to the Ministry of Defense. The ministry will receive UAH 1.164 trillion (-5.5%), the Security Service of Ukraine – UAH 35.1 billion (+11%), the Main Intelligence Directorate – UAH 18.1 billion (+11.7%), the Foreign Intelligence Service – UAH 6 billion (+9.3%), and the National Security and Defense Council – UAH 313.9 million (+11.2%). Allocated spending on weapons and ammunition production amounts to UAH 55.8 billion, with another UAH 48.1 billion planned for drone procurement.

It is quite possible that defense spending will increase to a record UAH 1.9 trillion, as budget amendments are expected in 2024, as occurred in 2023. Additional revenues from the reallocation of personal income tax (PIT) should also be added, whereby part of the tax will be redirected from local budgets to the state budget.

According to the income law, around UAH 90 billion ($2.4 billion) will be distributed as follows: UAH 43 billion each to the State Special Communications Service for drone production and to the Ministry of Strategic Industries for scaling ammunition and weapons production; another UAH 10 billion will be distributed among military units proportionally to PIT paid.

The second-largest spending item is the social sector, with UAH 469.72 billion ($12.6 billion) allocated in 2024. Most funds will traditionally go to covering the Pension Fund deficit (UAH 321.76 billion). Nearly UAH 50 billion will be spent on subsidies and UAH 5.8 billion on social protection for persons with disabilities. A significant increase is planned for the Ministry of Strategic Industries – UAH 56 billion (+617.8%), which is responsible for industrial and defense-industrial policy and defense procurement.

In 2024, as in the previous two years of full-scale war, all domestically collected tax revenues will be directed toward military needs. All other expenditures must be financed by international partners. The expected state budget deficit in 2024 is UAH 1.59 trillion ($42.9 billion), or 20.4% of GDP. Public debt will rise to UAH 8.18 trillion and exceed 104% of GDP.

SUPPORT FROM ALLIES

Financial inflows from Ukraine’s partners are critically important for maintaining state functionality and macro-financial stability next year. According to government estimates, Ukraine will need to attract $41 billion in international financing in 2024 to cover the budget deficit.

Since the start of the full-scale invasion, Ukraine has already secured around $65 billion in international assistance in the form of concessional loans and grants. The largest donors are the United States, the EU, and the IMF. Additional funds come from Canada, Japan, the United Kingdom, Germany, and other countries.

The main threat to Ukraine’s 2024 budget is the stability of Western financial assistance. It remains unclear whether Ukraine will receive the funds envisioned in the budget if international support decreases. For example, $35 billion has already been received this year, while total needs amount to $45 billion, forcing the government to seek an additional $10 billion by year’s end.

The Ukrainian government warns that insufficient resources to finance the 2024 budget deficit would lead to negative economic consequences not only for Ukraine but also for Europe. Rising food and energy prices would increase poverty levels, likely triggering a new wave of migration to Europe.

International visits and negotiations contribute to the European Commission exploring all possible financing options for Ukraine. At the same time, it relies on the EU Council approving the Ukraine Facility, which should become a source of support for 2024–2027. The European Parliament approved the fund on October 17, allocating €50 billion for Ukraine’s recovery, reconstruction, and modernization.

Approval may be delayed due to Hungary’s veto, but the EU has a plan to bypass it through national aid packages. However, this could take time, while Ukraine needs funding urgently from the start of the year.

SUMMARY

The coming year poses serious challenges for Ukraine and its allies. In 2024, Ukraine’s army and society may face a difficult situation due to uncertainty regarding financial and military assistance. Upcoming elections in the US and Europe may directly affect political and military support for Ukraine, consequences already felt in late 2023.

There is no doubt that Russia will attempt to exploit elections to destabilize Western societies and expand its network of influence. Despite Ukraine’s efforts to develop its defense industry, a reduction in military support will significantly affect the course of the war in 2024. Given that Russia is systematically increasing war spending—twice as much as Ukraine allocates to defense—strengthening cooperation with the democratic world remains essential.

Any consideration of reducing support for Ukraine is a costly mistake. If a country that serves as a shield for Europe against a terrorist state experiences increased poverty or weakened defense capabilities, it will pose a threat to all of Europe.