State Budget 2025: only UAH 22 billion is planned to support business

The government expects GDP growth of 2.7% and inflation of 9.7% next year

On November 19, the Verkhovna Rada adopted draft law No. 12000 on the state budget of Ukraine for 2025. This is the third budget that the Ukrainian parliament has adopted in the context of a full-scale war.

UAH 2.23 trillion was allocated for security and defense, which is more than 26% of GDP. It is likely that the document is designed to assume that hostilities will continue throughout the next year at approximately the current intensity.

In such circumstances, it is clear that development and business are financed at a minimum. In the state budget for 2025, the government has allocated UAH 128.4 billion for regional development, business support and restoration of damaged infrastructure.

The implementation of the state budget remains critically dependent on external financing. So far, only $15.2 billion (future IMF tranches and funds under the EU’s Ukraine Facility program) out of the required $38.4 billion have been confirmed. There may also be problems with the sufficiency of domestic financing.

Key figures of the state budget-2025

By the second reading, the draft document had changed minimally, with expenditures increasing by UAH 50 billion, UAH 24 billion of which was allocated for education. The document was approved without any problems. The budget revenues are planned at UAH 2.34 trillion, while expenditures are UAH 3.94 trillion. The deficit will amount to UAH 1.64 trillion, or 19.4% of GDP.

Taking into account the increase in budget expenditures in 2024 by UAH 500 billion, security and defense funding in 2025 will remain virtually unchanged – UAH 2.18 trillion versus UAH 2.22 trillion.

“The main item of the increase is an increase in security spending from 22.1% to 26.3% of GDP. This clearly shows that, firstly, they are going to fight for a whole year, and secondly, they are not sure that there will be Western supplies. Therefore, they are increasing their purchases,” emphasizes economic expert Danylo Monin.

Next year, the Ukrainian economy is expected to show minimal growth rates of only 2.7% y/y (in 2024, growth is projected at 3.5% y/y). The average annual inflation will be 9.7% y/y (the NBU expects the same 9.7% in 2024), and the average salary will increase from UAH 20.6 ths to UAH 24.4 ths per month. Thus, the average nominal wage growth in 2025 compared to 2024 will be 18.5%, the real wage growth (adjusted for inflation) will be 8.2%, and the increase in the dollar equivalent (adjusted for exchange rate changes) will be 7.4%. The NBU estimates that real wages in Ukraine will increase by 14% y/y in 2024 and will exceed the pre-war level by the end of the year.

Business support in the 2025 state budget

In a time of war, the state budget cannot a priori be focused on supporting business. Moreover, this assistance will be reduced even in nominal terms – from UAH 30.9 billion in 2024 to UAH 22.4 billion in 2025.

Among the programs to support domestic business, the Cabinet of Ministers has planned to allocate funds in the state budget for 2025 for the following areas

Affordable Loans 5-7-9% program – UAH 18 billion;
Innovation Development Fund – UAH 3 billion;
grants for business – UAH 1.4 billion.

In addition, in 2025, business support will continue at the expense of the balance of unused unemployment funds held in the special fund of the state budget.

“These funds will be used to partially compensate for the cost of agricultural machinery and equipment of domestic production, state incentives for the creation of industrial parks, state support for the implementation of investment projects with significant investments, compensation for the costs of humanitarian demining of agricultural land, and support for domestic demand for domestic goods and services,” the explanatory note to the document says.

At the same time, hundreds of billions of budget funds will be spent on purchases from national producers in the form of defense orders. The planned expenditures for weapons and military equipment in the state budget for 2025 amount to UAH 739 billion, including UAH 55 billion for the Ministry of Strategic Industry, which is responsible for the modernization of the defense industry, and UAH 47 billion – for the purchase of UAVs.

The list of defense products to be purchased is quite wide, so these funds can be used by machine building, steel sector, steel products and casting, manufacturers of instruments and equipment, etc. Of course, this is not direct business support, and the funds themselves will be partially used to purchase from Western suppliers.

Infrastructure spending in 2025

Amid military spending, the state budget for 2025 is projected to be stingy with infrastructure investments. The bulk of the expenditures will be spent on regional development projects and the restoration of infrastructure damaged during the hostilities. The following amounts will be allocated for these purposes:

Reserve Fund – UAH 29.6 billion,
Subvention for the implementation of public investment projects – UAH 18.7 billion,
Compensation for damaged or destroyed housing – UAH 4 billion,
State Fund for Decarbonization and Energy Efficient Transformation – UAH 1.75 billion,
State Fund for Regional Development – UAH 1 billion,
Humanitarian demining of agricultural land – UAH 1 billion.

However, the amount of recovery costs is not comparable to the amount of damage. According to KSE estimates, direct damage to infrastructure in monetary terms as of January 2024 amounted to $157 billion.

In addition, UAH 12.6 billion will be allocated for the operation, maintenance and repair of roads important for defense and the economy. The Ministry of Finance wanted to restore the Road Fund in 2025, but the idea was abandoned before the second reading.

The state budget for 2025 allocates UAH 7 billion for Ukrainian Railways, including UAH 4.4 billion for the purchase of passenger railcars and UAH 128 million for co-financing infrastructure projects with international funds. These funds will be allocated directly from the state budget. Targeted Western funds will be used to finance the purchase of rails (UAH 1.8 billion) and intermodal terminals and the construction of the European gauge (UAH 1.2 billion).

“For the first time in the history of Ukraine, a targeted budget program for co-financing infrastructure projects has been envisaged. This allows us to attract European resources to modernize the railway. We also welcome the record funding for the purchase of passenger cars: more than 160 domestic enterprises involved in car building have been loaded with orders,” said Oleksandr Pertsovsky, CEO of Ukrainian Railways.

In addition, a new system of “public investment projects” will be launched next year, with resources for their implementation amounting to UAH 256 billion, of which

UAH 115 billion – financing under state guarantees,
UAH 71.9 billion – proceeds from other countries and IFIs,
UAH 44.2 billion – funds from the state budget special fund (however, they will have to be used to pay off debts from previous years),
UAH 25 billion – state budget funds for public investment projects.

Risks of the state budget 2025

As long as a full-scale war continues in the country, any stability is out of the question. However, it is already clear that the implementation of the 2025 state budget may face a number of problems.

Increased missile attacks on the energy sector. Any decline in economic activity, especially in basic industries, due to partial or complete cessation of electricity supply will quickly affect the state budget and the ability to fulfill its expenditure part for defense purposes.
Limitation of domestic borrowing resources. This year, the Ministry of Finance was able to close the budget deficit with domestic government bonds after increasing expenditures. In the state budget for 2025, it is planned to raise UAH 579 billion through domestic government bonds, and to repay UAH 562 billion of old loans. At the same time, the Ministry of Finance has approached the limits of its domestic borrowing capacity, Forbes reports.
Unapproved sources of financing. The already approved draft law No. 11416-d on tax increases, which is expected to bring UAH 141 billion to the budget in 2025, has not yet been signed. However, the document is likely to be signed: it is one of the obligations to the IMF. In addition, the state budget for 2025 already takes into account the revenues that should come from No. 11416-d, says Yaroslav Zheleznyak, first deputy chairman of the parliamentary committee on finance, tax and customs policy.
Continued dependence on Western financial assistance. Ukraine finances all non-military expenditures at the expense of international partners. Expected external financing in 2025 will amount to $38.4 billion ($41.3 billion in 2024). Although not the entire amount of external borrowing has been confirmed by international partners ($23.2 billion), Ukraine is likely to receive the necessary funds next year thanks to a €35 billion loan from the EU and a $20 billion loan from the United States. However, obtaining this level of funding in the following years remains a big question mark.
Mismatch between GDP and inflation forecasts. The Cabinet of Ministers predicts economic growth of 2.7% y/y in 2025, while the National Bank forecasts 4.3% y/y. The inflation forecasts also differ: the government expects an average annual rate of 9.7% y/y, while the NBU expects 6.9% y/y. Achieving these targets requires different approaches to fiscal and monetary policy.

Of course, there may be other problems caused by the war or various external or internal factors. The weakness of the state budget is that large-scale risks, such as increased Russian strikes in the energy sector, are not taken into account in the document. Therefore, in any case, it is important for the state to proactively support the basic sectors of the economy that are budget-forming both at the national and regional levels.

The practice of implementing the state budget in times of war shows that the Cabinet of Ministers has to look for additional funds to finance the war effort. If the war lasts until the end of 2025, the government will probably have to look for reserves again next year.