Ukrainian public finance in 2024 was shaped by three key developments: tax reforms to stabilize revenues, the launch of the ERA mechanism for financing Ukraine through proceeds from frozen Russian assets, and state debt restructuring to ease the debt burden.

The first major change was the adoption of tax increases to secure budget revenues for 2025 and sustain public finances during martial law. The corporate income tax (CIT) rate was raised to 25% for financial institutions (excluding banks) and to 50% for banks. Additional fiscal measures included advance payments for fuel traders and higher pre-payments for currency exchangers as well as a significant increase in the military fee from 1.5% to 5%, which was extended to individual entrepreneurs starting January 1, 2025. These tax adjustments are projected to generate an additional $3 bn in 2025, covering 6.7% of planned tax revenues.

The second key development was the launch of the ERA mechanism, which mobilizes $50 bn through proceeds from frozen Russian assets to support Ukraine. The program secured contributions from the EU ($19.9 bn), the US ($20 bn), the UK ($2.9 bn), Japan ($3.4 bn), and Canada ($3.8 bn). Initial disbursements included a $1 bn grant from the US in December 2024 and an €3 bn loans from the EU in January 2025. Inflows for 2025 are projected at $20 bn, with $17.1 bn allocated to the general fund and $2.9 bn to the special fund of the budget. The EU and  UK will be primary funding sources for 2025, with the program set to run until the end of 2027.

Finally, Ukraine successfully restructured its external state and state-guaranteed debt in the amount of $20.5 bn, that will save $11.4 bn over the next three years and a total of $22.8 bn by 2033.

In the third year of the ongoing full-scale war, Ukraine maintained fiscal stability, executing record-high government expenditures of $111.7 bn - just 2.7% below the planned level in hryvnia terms. External financial assistance played a crucial role, amounting to $42.8 bn in 2024. This, coupled with robust tax revenue growth (rising from $32.9 bn to $41 bn), allowed the government to sustain key sectors effectively.

Budget revenues (excl. grants) increased by 7.8% to $66 bn in 2024, driven primarily by tax receipts, which surged by 24.7%. VAT remained the dominant revenue source, contributing 44.6% of total budget revenues.The most significant growth was observed in direct taxes: CIT revenues soared by 71.7% y/y and PIT  by 43.6% y/y. The banking sector contributed 33.9% of total CIT revenues, while military personnel accounted for 53.9% of PIT collections, highlighting the fiscal implications of defence expenditures.

 

Budget expenditures expanded by 1.7% y/y, reaching $111.7 bn. Defence spending remained the government’s top priority, with defence sector allocations remaining unchanged from 2023 at $57.4 bn. In hryvnia terms, however, defence expenditures grew by 9.9%, reflecting the impact of exchange rate fluctuations. Security sector expenditures expanded by 10.2% to $17.3 bn, while  economic activities allocations rose by 10.8% to $4.1 bn. Conversely, social expenditures were reduced, reflecting shifts in fiscal priorities toward security-related spending amid fiscal constraints: education spending declined by 5.9% to $1.6bn, while social protection allocations fell by 9.4% to $11.6bn.

 

* The state functions sector includes the state debt servicing

The budget deficit in 2024 was $2.7 bn or 7.4% lower than in 2023 and amounted to $33.8 bn. As in 2023 and 2024, external financial assistance remained the main source of financing, amounting to $31 bn in borrowings and $11.8 bn in grants.

Ukraine’s state debt (incl. state-guaranteed debt) reached $166.1 bn at the end of 2024, 14.3% y/y. At the same time, in 2024, external state debt increased by $20.1 bn, and domestic debt by $2.5 bn. As of the end of 2024, external public debt amounted to 72.2% of the total debt. 

 

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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.