Ukraine’s Budget Gap: Can Kyiv Afford Its Own Defense Amid EU Pressure and Russian Attacks?

In a month littered with dark spots for Ukraine, a bigger, slower-moving storm cloud is drifting toward the embattled nation: the chance of a budget shortfall of tens of billions of dollars if Kyiv fails to pass reforms needed for continued European financial support.

Ultimately, experts believe that Ukraine will likely still be able to count on major European backing. But the saga of the budget gap, as well as tough economic conditions for 2027 and beyond, suggests that Ukraine will increasingly have to walk a fine line to maintain funding for its defense as the war stretches into a fifth year.

In a month littered with dark spots for Ukraine, a bigger, slower-moving storm cloud is drifting toward the embattled nation: the chance of a budget shortfall of tens of billions of dollars if Kyiv fails to pass reforms needed for continued European financial support.

Ultimately, experts believe that Ukraine will likely still be able to count on major European backing. But the saga of the budget gap, as well as tough economic conditions for 2027 and beyond, suggests that Ukraine will increasingly have to walk a fine line to maintain funding for its defense as the war stretches into a fifth year.

“I think substantial European support will continue, but we should not think that any future programs are definitely secured or guaranteed,” said Sergiy Tsivkach, former head of the national investment agency UkraineInvest.

Ukraine’s budget has long been under pressure: The country’s gross domestic product contracted by nearly 30 percent in 2022, the first year of Russia’s invasion, even as spending on military equipment and salaries rose 640 percent. With financial support from the United States, Europe, and others, though, Ukraine squeaked through without too much concern each year—until now.

In August, Ukraine’s officials announced they urgently needed $27 billion more for their defense budget, reportedly causing shock among officials from Europe, which has supplanted the U.S. as Ukraine’s biggest financial supporter. Ukrainian officials said the budget gap was partly the result of the decision to increase military salaries, as well as the cost of drone procurement. Ukraine in September reduced the gap to $20 billion in part through austerity measures.

To fill the remainder, Ukrainian President Volodymyr Zelensky urged the European Union to disburse money early from a loan originally meant to be spent in 2027. The bloc balked at this and instead has reportedly pressed Ukraine to pass anti-corruption and tax reform legislation to unlock $38 billion already on offer. The demand comes amid an ongoing corruption scandal that has seen investigations into officials close to Zelensky as well as many lawmakers.

Ukraine is voting this week on some of that legislation, and on Thursday Ukraine’s parliament passed one key revision, thereby unlocking some EU aid. But it’s unclear whether all of the required reforms will pass, and if not, what the EU response might be. Ukrainian society is staunchly opposed to corruption. In a September poll, 50 percent of respondents said corruption was their top concern, higher even than Russian attacks. Yet Ukraine’s elected officials have shown a lack of urgency on the EU’s required reforms. Ukraine’s presidential administration, meanwhile, has reportedly struggled to work with parliament, in part due to personnel shifts within Zelensky’s team.

Zelensky’s office may believe that “some partial implementation [of EU requirements] will be counted as full implementation” said Olena Prokopenko, a senior fellow at the German Marshall Fund think tank. “But I think that approach is a very dangerous game.”

Even if Ukraine pulls itself out of the hole this year, though, the joint pressures of Russian attacks and European demands for reform mean that the budget issue is far from settled for the years to come.

Ukraine’s 2027 budget already faces a gap of $32.6 billion, according to the Kyiv School of Economics. In part, Ukraine’s budget woes are due to Russia’s increasingly successful targeting of the country’s top industries: steel and grain. Ukraine’s GDP is expected to rise just 1.2 percent this year and 1.5 percent next year, according to a World Bank report.

And the situation could get even worse. Increased Russian attacks, among other factors, could lead to a further loss of 450,000 jobs and a further loss of as much as $4.9 billion in tax revenue, the Kyiv School of Economics reported. “I think the trend will probably head towards the war becoming more and more expensive,” Prokopenko said.

Russia’s economy is also struggling, with expected growth of just 1.1 percent this year, thanks in part to U.S. and EU sanctions as well as Ukrainian strikes on its energy industry. But energy revenue—including a pending sale of diesel to the U.S. announced last week—has kept Russia rich enough to keep prosecuting the war.

As Russia applies more pressure on Ukraine, cracks could appear in European support, which largely expires by 2027 under the terms of two programs, the $56 billion Ukraine Facility program and the $100 billion Ukraine Support Loan.

After that, Ukraine may have to deal with new governments that are potentially more skeptical of Kyiv’s requests. Between 2026 and 2027, four of the EU’s major economies—Spain, France, Poland, and Italy—will hold elections. In France, Marine Le Pen, the front-runner in the presidential election, has said she would stop financial aid for Ukraine. And although there are no national elections coming up in Germany, the Ukraine-skeptic party Alternative for Germany made major gains in state elections in September.

Still, experts are so far cautiously optimistic that some form of support will endure. In part, that’s because Ukrainian security is increasingly viewed as key to European security, said Prokopenko. “Europe cannot afford leaving Ukraine without sufficient capacity to defend itself and by extension defend Europe,” she said.

Support for Ukraine also shouldn’t be too much of a stretch for the EU’s finances, at least at current levels, said Charles Lichfield, an expert at the Atlantic Council think tank. “Another 90 billion [euros] wouldn’t be a big risk,” he said.

Ukraine’s own economy, while battered, is also far from helpless. “If Ukraine can protect economic activity inside the country, this will by itself decrease the demand for international support and decrease budgetary gaps,” Tsivkach said.

Until the introduction of new jet-powered drones, Ukraine was regularly shooting down most long-range drones fired by Russia. On Monday, former Ukrainian Defense Minister Mykhailo Fedorov announced that a new interceptor drone had successfully taken out two of the new Russian drones.

Ukraine also has yet to tap its biggest potential source of funds: the $235 billion in Russian assets frozen in European financial institutions, a policy that Ukrainian Foreign Minister Andrii Sybiha pushed for on Monday in an op-ed. The plan has repeatedly been shot down by Belgium, where most of the assets are held, but has previously been supported by some EU members.

And if all else fails, Ukraine can also rely on nations outside the EU, such as Japan, the United Kingdom, Canada, and Norway—the Scandinavian country alone is set to give Ukraine $9 billion in 2027.

“It’s hard to imagine a scenario where everything goes wrong,” Lichfield said.