The key priorities of the State Budget for 2025 are security, defence and social protection of the population, which logically continue the Government’s policy of previous years.
Despite the fact that the primary challenge in 2025 is the ability of the State Budget to ensure national security and defence of the country in the context of the ongoing war, as well as to cover the existing budget deficit.
Key Indicators of the State Budget for 2025
The State Budget of Ukraine for 2025 is balanced in terms of revenues and expenditures, based on the macroeconomic forecast, taking into account the indicators of the Budget Declaration for 2025-2027, which was approved by the Government for the first time since the beginning of the full-scale invasion. This indicates the restoration of all stages of the budget process and an increase in the level of justification for the budget indicators.
State budget revenues
The state budget revenues in 2025 are expected to increase by 21.7% compared to 2024 СRatio of total revenues for 2025 (UAH 2,327.1 billion) to total planned revenues for 2024 (as amended) (UAH 1,911.5 billion). and amount to UAH 2.3 trillion. The main source of budget revenues is tax revenues, which are expected to increase to 85.7% The ratio of tax revenues for 2025 (UAH 1,994.5 billion) to the total revenues of the State Budget for 2025. of the revenue structure, although in previous years In 2022, the share of actual tax revenues in the structure of state budget revenues (including inter-budget transfers) was 53.1% (UAH 949.7 billion / UAH 1,787.4 billion), in 2023 — 45% (UAH 1,203.5 billion / UAH 2,672 billion), in 2024 the planned figure with changes at the level of 87.8% (UAH 1,678.7 billion / UAH 1,911.5 billion), the actual figure as of 01. 12.2024 - 56.2% (UAH 1,490.1 billion / UAH 2,650.99 billion). , the share of tax revenues was much lower. This is due to the increase in the number of taxes, which are expected to bring in at least UAH 153.8 billion, including UAH 122.4 billion from the military fee and UAH 4.3 billion from the corporate income tax. This amount includes additional revenues of UAH 22.6 billion from the increased excise taxes on tobacco products and another UAH 4.5 billion from VAT, although the draft law No. 11090, which provides for an increase in excise rates, has not yet been signed.
At the same time, the country’s consolidated budget in 2025 will miss approximately UAH 154.7 billion due to granted tax exemptions, of which 85,2% The ratio of VAT tax privileges (UAH 131.7 billion) to the total amount of lost revenues from tax privileges. are related to VAT. More than half of the tax exemptions are allocated to the defence sector, which is a reasonable decision in times of war. At the same time, given the significant amount of tax shortfalls in the budget, an effective mechanism for increasing revenue could involve conducting an inventory of tax exemptions and incentives.
Additionally, during the year, the budget plans to attract external loans worth UAH 1.7 trillion and another UAH 579.2 billion of domestic government borrowings. Domestic borrowings are allocated for the redemption of domestic government bonds (DGBs), which are 97% Ratio of the planned amount of funds to repay domestic liabilities of UAH 561.9 billion to domestic government borrowings. covered by the proceeds from the sale of new DGBs.
State budget expenditures
The state budget expenditures for 2025 are planned at UAH 3.9 trillion, which is a 5% Ratio of the planned expenditures for 2025 (UAH 3,929.1 billion) to the planned expenditures as amended for 2024 (UAH 3,736.6 billion). increase compared to 2024. In fact, the 2025 budget is conditionally divided into two parts: Priority No. 1 – security and defence, allocated UAH 2.2 trillion or 56.6% of total expenditures, which is 26.3% of GDP Ratio of planned expenditures on the security and defence sector (UAH 2,224.8 billion) to the projected nominal GDP (UAH 8,466.3 billion). , and Priority No. 2 – the social and humanitarian sector The term ‘social and humanitarian sphere’ refers to the following areas of state policy: social protection and social security, healthcare, education, sports, culture and media, support for war veterans, and environmental protection. , planned to receive at least 22% of Ratio of the planned amount of expenditures from the general and special funds (including general government expenditures and lending) for the social and humanitarian sphere to the total planned amount of expenditures. all expenditures, which constitutes almost 10% of GDP Ratio of social and humanitarian expenditures to the projected nominal GDP. .
The security and defence sector will receive additional spending of UAH 47.6 billion compared to 2024, which is planned to be spent on weapons, military equipment and payments to the military. The annual budget of the Ministry of Defence is UAH 1.57 trillion Of the total budget expenditures for the security and defence sector, the Ministry of Defence is allocated UAH 1.57 billion, while the rest is allocated to a number of state agencies (Ministry of Internal Affairs of Ukraine, The National Police of Ukraine, National Guard of Ukraine, State Emergency Service of Ukraine, State Tax Service of Ukraine, Security Service of Ukraine etc.). , which means it will increase by no more than 2% compared to 2024. If hostilities intensify, the MoD’s expenditures may not be enough to ensure the country’s defence capability. This indicates the need to optimise state budget expenditures.
In 2025, expenditures In 2025: 59% is the ratio of revenues to expenditures, and 41% is the ratio of debt financing (UAH 1,634.3 billion) to expenditures. The indicators for 2024 are defined similarly. will be covered by 59% of revenues and 41% of external and internal borrowings, which indicates a positive trend in the growth of the state budget’s sustainability, as in 2024, revenues and budget liabilities (as amended) are planned to be almost the same (51% / 49%).
State budget financing and public debt
In 2025, the state budget deficit is expected to decrease by almost 11% compared to 2024 and amount to UAH 1.6 trillion (19.4% of GDP). However, as the macroeconomic forecast includes a projected increase in the hryvnia exchange rate (to 45 UAH/USD), an inflation rate (to 9.5%), and social payments at the level of 2024, the state budget deficit may require additional borrowing to cover it, which in turn will increase the public debt and slow economic growth. Moreover, we can expect a significant reduction in the purchasing power of the population and a worsening inability to meet even the basic needs of the most socially vulnerable groups.
In 2025, the country’s public debt is expected to reach UAH 8.2 trillion, which is 97% of GDP. The growth of public debt, especially the part of the debt denominated in foreign currency, is highly likely to exceed GDP. Against the backdrop of a slowdown in the national economy, exceeding the World Bank’s 64% public debt ceiling and reaching 100% of GDP will slow down the development of the Ukrainian economy by at least 0.72% per year According to a World Bank study, exceeding the maximum ‘safe’ level of public debt of 64% will result in a 0.02% slowdown in the economy (GDP) for every 1% excess. .
Expected challenges in the implementation of the State Budget in 2025
Obviously, the indicators of the adopted Law on the State Budget of Ukraine for 2025 are not final and are likely to change depending on the socio-economic and security situation in the country. At the same time, the implementation of the indicators of the State Budget of Ukraine for 2025 may be accompanied by several risks that will require timely and effective resolution:
Increased defence needs
Since expenditures on the security and defence sector remain almost unchanged compared to 2024 if the intensity of hostilities at the front remains or increases, additional mobilisation may be necessary, which will require additional expenditures on personnel, as well as the purchase of ammunition, weapons, military equipment, fortifications, etc, therefore, the MoD budget may need to be revised in the second half of 2025, similar to that of 2024.
Economic slowdown and tax increases
Further damage to infrastructure, including energy and port infrastructure, and the destruction of logistics routes will significantly limit economic activity. On the one hand, this could lead to a rise in the state budget deficit and, on the other hand, to an increase in the share of public debt denominated in foreign currency. The search for additional sources of financing budget expenditures may lead to another tax increase and, as a result, a slowdown in economic development.
Uncertainty of further war scenarios
Due to the variability of the consequences of the war, there is a high probability that expenditures planned for certain areas will be reallocated to debt service and defence, as was the case in previous years. Even before the war, frequent reallocations were considered a sign of poor planning, which could ultimately lead to inefficient use of funds. Of course, it is difficult to assess the extent to which this approach can be avoided in times of war, and planning can be carried out in a more reasonable and optimised manner (avoiding many reallocations during the budget year). Military operations may also bring further intense shelling of energy infrastructure, which will only deepen the electricity shortage. This could hinder economic recovery and raise prices on the domestic market.
Consistency of social standards
Maintaining social payments at the 2024 level in the face of rising inflation, hryvnia depreciation, and tax increases will significantly reduce the purchasing power of the population and could worsen migration rates abroad, further increasing the labour shortage in the domestic labour market.
Irregular and insufficient external funding
The risk of not receiving or irregularly receiving external funding from international partners is quite significant. This may require the mobilisation of internal reserves to meet the needs of defence and the social sector, which are already quite limited and could further undermine the state’s stability.
Is there a prospect and capacity to overcome the challenges?
The year 2025 will bring many challenges to Ukraine. Among them is the challenge of balancing the state budget to ensure funds are available for both defence and the social and humanitarian sectors. The main problem, of course, is uncertainty. Will external support be sufficient? How much will defence spending need to be increased? To what extent will the economy shrink? It is difficult to provide a precise answer to these questions. However, despite grim prospects, there are still reasons for hope. 2025 marks the fourth year since the start of the full-scale invasion and the twelfth year since the start of Russian aggression against Ukraine. Ukraine has survived the shock and financial turmoil of 2014 and 2022 and has survived 2023 and 2024. A budgetary catastrophe did not occur. The budget was balanced, redistributed, and reduced; loans and grants were attracted, and difficult and sometimes unpopular decisions were made. Therefore, we can predict that 2025 will undoubtedly be a difficult year, including for the State Budget of Ukraine. However, the experience of previous years shows that Ukraine can overcome budgetary challenges, which we hope will continue in 2025.
