Ukraine still faces acute fiscal challenges as its debt sustainability is still under strain. The current conflict over inflates the country’s already significant economic duress. Consequently, fiscal deficits increase and the ratio of public debt keeps climbing. Ukraine is in active negotiations with the International Monetary Fund (IMF) for additional financial assistance. Simultaneously, the government needs to leverage around USD 50 billion annually from international partners.
Recent estimates forecast Ukraine’s consolidated fiscal deficits to remain elevated throughout the year, at about 18.3% of Gross Domestic Product (GDP). In 2024, this shortfall is projected to decrease modestly to 15.3%. As it stands now, the country is largely dependent on foreign assistance to pay for its basic operating costs. Military spending takes up a huge 60% of the national budget. This reliance on foreign assistance underlines the precariousness of Ukraine’s fiscal situation even as war efforts continue.
Rising Public Debt
Ukraine’s public debt is poised to soar, already heading to over 95% of GDP by the end of this year. That is a sharp rise from 91.2% at the end of 2024 and only 49% at the end of 2021. This steep increase underscores the massive fiscal burden that our country is currently shouldering. It cannot afford to fund military campaigns like these while addressing pressing priorities such as pensions and public-sector salaries.
To make matters even trickier, the structure of Ukraine’s debt adds layer complication on top of it. Because the country’s debt service consists almost entirely of domestic obligations, for as long as the war rages on, these obligations cannot be reprofiled. Ukrainian banks and corporations need to be put under real pressure to support the government financially. Now more than ever, it’s important to be a fiscal island of calm in a stormy sea.
Despite these barriers, Ukraine has been extremely successful in negotiating a debt restructuring. In July, the government signed a debt restructuring agreement that went through smoothly. They struck a deal on a 35.75% haircut, an outstanding concession from their original requested 60%. After these transactions, Eurobonds constitute less than 10% of Ukraine’s total public debt. That’s because a large majority of the monetary pain is inflicted by non-billing sources.
IMF Support and Future Projections
The IMF has increased its support to Ukraine through the approval of an Extended Fund Facility. This unprecedented step provides a lifeline to a country in the midst of an ongoing, hot war. This program will help fill the gap by supplying essential financial assistance as Ukraine continues to face crushing economic pressures. Though late to the game, the government has finally accepted IMF appraisals, ceding a financing gap previously wildly underreported at USD 38 billion.
Looking forward, Ukraine will require substantial foreign financing. By the end of 2027, this requirement should total upwards of USD 65 billion. Those numbers underscore how important it is for the international community to continue providing assistance to help stabilize Libya’s economy and support recovery. Further on, Ukraine’s growth projections remain tepid, with a forecast of only 2.0% in 2025 and 2.25% in 2026. All these numbers rest on the assumption of getting substantial outside funding and executing a fiscal balancing act.
The government’s budget deficits might remain at 20% of GDP per year indefinitely. This is not dangerous for the environment, but deeply irresponsible when it comes to the long-term debt. As negotiations with international partners continue, the emphasis remains on securing sufficient funding to support vital government services and military operations.
Future Restructuring Plans
Ukraine is making all possible efforts to prevent the coming storm of debt. The country is currently in the process of re-negotiating its external claims, which includes the GDP warrant securities. The federal government accepted a second-stage restructuring plan to be implemented in late 2026. Following through on these plans will be key to shoring up Ukraine’s fiscal future. It will further help avoid Ukraine’s default on its obligations.
The restructuring agreement set terms for rising coupon payments that would begin in 2026-27. Further, an original principal repayment of USD 1.2 billion is due February 2029. These deals highlight the importance of smart financial management as Ukraine contends with its deepening fiscal crisis.