Ukraine's budget stabilised in the second quarter of 2024 after a challenging first three months of the year largely due to the unblocking of international financial assistance and improved domestic tax revenues.

These developments allowed for a significant increase in government spending, particularly on military needs and social welfare, leading to one of the highest expenditure levels since the start of the full-scale war.

Continued international financial support remains crucial for covering the non-military budget deficit, as such funds cannot be used for military purposes. However, the risk of insufficient internal financial resources to cover military expenditures in the second half of the year remains significant. This concern arises from the fact that the initial budget plan for defence spending in 2024 was lower than the actual amount spent on similar needs in 2023.

The budget deficit in the first half of the year (H1 2024) amounted to $16bn, a 9.9% increase compared to $14.6bn in H1 2023. The primary reason for this rise was the significant reduction in grants received in H1 2024: only $1bn compared to $7.4bn in H1 2023.

Ukraine’s budget results 2Q24 $bn

Revenues (excluding grants) increased sharply in H1 2024 compared to H1 2023 – by $4.5bn or 15.8%. 

• Tax revenues rose by 40.8% on the back of the economy’s adjustment to the war, changes to the tax code and effects from inflation – thereby making the biggest contribution to overall revenue growth. 

• However, the lack of internal resources might negatively influence revenues going forward.

Ukraine budget results structure of budget revenues 1H24 vs 1H23

Expenditures in H1 2024 increased by 1.6% compared to the same period last year, reaching $49.6bn. 

• The most significant growth was observed in the public order, security, and judicial system sectors – +22.6% to $7.4bn – and in the general government functions sector (mainly due to debt servicing) – +6.3% to $6.6bn. 

• The social protection sector is the only one that saw reduced funding in nominal terms compared to the same period in 2023 –  -10.8% to $5.8bn.

Ukraine budget results structure of budget expenditures 1H24 vs 1H23

State debt increased by 20.6% compared to the same period in 2023 to $144.3bn by the end of the H1 2024. External debt rose significantly, with $23.9bn in new debt, a 29.9% increase, bringing total external debt to $103.8bn. 

• Domestic debt grew by $0.7bn, or 1.8%, reaching $40.5bn. 

• In contrast, state-guaranteed debt dropped by 14.3% to $7.8bn, due to minimal new borrowing under state guarantees and ongoing repayments, including $2.5bn in 2023.

Ukraine budget results structure state debt & debt guarantees 1H24 vs 1H23

Read the full report here.

 

The Kyiv School of Economics (KSE) is a bne IntelliNews media partner and a leading source of economic analysis and information on Ukraine. This content originally appeared on the KSE website.