The first half of 2026 ended for Ukraine with a formal reduction in the budget deficit. At first glance, the figures look better than in the same period last year: state revenues reached 2.52 trillion hryvnias, while expenditures amounted to 2.83 trillion hryvnias. The deficit decreased to 303.2 billion hryvnias. However, behind these numbers lies a critical dependence of the economy on foreign aid.
A Budget Stitched Together with Grants
Economist Bohdan Danylyshyn, in his column for RBC-Ukraine, points out that the main reason for the improvement in figures was not internal revenues, but nearly 570 billion hryvnias in international grants. Without these transfers, revenue growth would have been only 18.3%, and the budget deficit would have soared to 876.7 billion hryvnias.
Thus, budgetary balance in Ukraine remains not internal, but largely imported. The Ministry of Finance has already warned that any untimely receipt of foreign aid could paralyze deficit financing and the restoration of destroyed infrastructure.
Defense Priority and the Cost of Deferred Repairs
The structure of state expenditures reflects the reality of wartime. About seven out of every ten hryvnias went to defense, security, public order, and judicial power. This is an inevitable priority for a warring country, but it narrows resources for restoring energy and developing the social sphere.
Particular concern is caused by the almost zero dynamics of capital expenditures. Repairs and modernization deferred today will inevitably lead to greater budgetary needs tomorrow. Following the June changes to the budget, the annual resource for the security and defense sector was increased to 4.367 trillion hryvnias, meaning that pressure on the treasury in the second half of the year will only grow.
Debt Trap and Currency Risks
The domestic market for government bonds (OVGZ) covers only a limited part of needs. As of August 1, 2026, new borrowings are almost equal to repayments, so net domestic financing remains insignificant.
By the end of June, state and state-guaranteed debt reached 9.49 trillion hryvnias. Its advantage is a preferential structure: 66.4% of the portfolio consists of loans from international partners, and the weighted average rate is only 4.43%. However, more than three-quarters of this debt is external, and about 80% is denominated in foreign currencies or SDRs. This makes the cost of liabilities extremely sensitive to exchange rate fluctuations and political decisions by donors.
Economic Stagnation and Survival Strategy
Even with massive budgetary support, the economic base is growing slowly. The IMF forecasts GDP growth in 2026 of only 1.0–1.6%, while the National Bank of Ukraine forecasts 1.8%. Needs for reconstruction and restoration are estimated at $587.7 billion, which is disproportionate to the current capabilities of the budget.
The main risk lies not in sudden insolvency, but in long-term dependence on grants and military demand amidst weak private investment activity. To avoid a scenario where current stability remains merely an "expensive pause," the budgetary strategy must combine guaranteed long-term external financing, dedollarization, improved tax administration, and the development of the domestic OVGZ market.
