A $27 billion hole: three scenarios Kyiv plans to use to close the Ministry of Defense budget deficit

According to an assessment by President Volodymyr Zelensky, a funding shortfall of roughly $27 billion — almost 1.2 trillion hryvnia — has formed in Ukraine's Ministry of Defense. As RBC-Ukraine's special correspondent Yury Doschatov found, Kyiv currently has three main channels to cover it: early disbursement of funds under the European Union loan, additional assistance from other partners, and domestic borrowing. The choice among them determines not only military logistics but also Ukraine's negotiating position with the IMF and Brussels.

The scale of the problem: from $7 to $27 billion

The problem did not arise suddenly. As early as January, shortly after his appointment as defense minister, Mykhailo Fedorov stated that his ministry was short by 300 billion hryvnia — around $7 billion. By summer, the figure announced at the presidential level had grown several-fold: to $27 billion. According to Zelensky, an additional $8–10 billion needs to be found by the end of the year, and these funds are needed in advance — to equip the army with weapons and everything necessary starting from January 2027. A further roughly $20 billion is required for military salaries, compensation to the families of the fallen, and other current expenses. At the same time, as a source familiar with the situation told the publication, this is not about raising payments: "We don't have the money to pay salaries at the current level."

Contradictory data

Here the versions of the parties diverge noticeably. Former defense minister Mykhailo Fedorov, in an interview with Reuters, expressed surprise at the very size of the deficit and said he had no idea where the $27 billion figure came from. According to him, the planned budget deficit by the end of the year was about $5 billion, and the ministry knew where it would get that money. "Perhaps the plan changed and new projects emerged that require such a budget," the former minister suggested. Thus, the gap between the sum announced by the president ($27 billion) and the planned deficit named by Fedorov (about $5 billion) is more than $20 billion, and neither side has yet disclosed the recalculation methodology. The Ministry of Defense and the Ministry of Finance did not comment on the funding shortfall situation at the time of publication.

Three scenarios for covering the deficit

The first and, according to sources in power, the most optimal scenario is an agreement with the EU on so-called front-loading, i.e. shifting part of the payments under the 90-billion-euro loan from next year to the current one. The second scenario is attracting additional assistance from other partners. The third is increasing the expenditure part of the state budget and covering the difference through domestic borrowing via the issuance of OFZ (government bonds), an instrument already used in 2023. However, it is precisely this last path that runs into the IMF's position, which has been and remains categorically against increasing the state budget deficit; within the first review of the credit program, Ukraine did not obtain consent for such a step. It is worth noting separately that as early as May, RBC-Ukraine wrote about attempts to agree with the EU on using the funds of the 90-billion-euro loan for payments to military personnel, but the European Commission has been and remains against such a targeted reallocation.

Front-loading of the EU loan: realistic, but conditional

In 2027, Ukraine is planned to receive 45 billion euros under the EU loan, of which 28.3 billion euros is earmarked for strengthening defense capabilities and purchasing weapons, and 16.7 billion euros — for macro-financial economic support. Kyiv intends to agree to shift part of this amount to the current year. "Theoretically, this can be agreed. It is realistic. We have already done this," notes a source familiar with the situation: at the beginning of the year, Ukraine had already shifted second-half-of-year spending to the first half, which, among other things, contributed to the growth of the current Ministry of Defense deficit. At the same time, sources are confident that the condition for front-loading will be the implementation of the schedule of all envisaged reforms, including changes to tax legislation.

The role of the IMF and the preparation of the 2027 budget

The key external filter for any of the scenarios remains the IMF. Next week, a working mission of the fund will arrive in Ukraine to familiarize itself with the process of preparing the 2027 state budget: it will assess the implementation and needs of the budget through the end of the current year, as well as review the draft budget for next year, which must be submitted to the Rada by September 15. The outcome will determine whether Ukraine has a need for additional financing and, if so, how to cover this need. It is precisely in this dialogue that it will likely be finally determined which of the three scenarios — front-loading, partner assistance, or domestic borrowing — will become the main instrument for closing the deficit.