By Daniel Flynn
Kyiv — The approval of a €90bn EU loan throws Ukraine a lifeline, averting deep cuts to public services, but Kyiv may need more money to meet its military needs this year, economists and officials said.
Ukraine’s budget foresees a massive deficit of about 1.9-trillion hryvnias ($43bn) in 2026 — about one-fifth of economic output — but economists say it significantly underestimates the cost of the war with Russia.
Maksym Samoiliuk, an economist at the Centre for Economic Strategy, a Kyiv-based think-tank, said military spending will be more realistically assessed now that the delayed loan has been approved to take into account factors such as a pay rise for military personnel, which is expected this summer.
“The loan is crucial as it creates the space needed to address pressures in Ukraine’s defence budget,” Samoiliuk said.
Only half of the €90bn will be disbursed this year, with the remainder in 2027. The bulk of the loan is earmarked for military spending, with about €17bn each year destined for general budget needs such as health and education.
In addition to Ukraine’s own military budget, a group of more than 20 allies funds purchases of US-made weapons under the prioritised Ukraine requirements list (Purl) programme.
Oil pipeline repair
Hungary’s prime minister Viktor Orban had blocked the EU loan for months after accusing Ukraine of dragging its feet with the repair of an oil pipeline that Kyiv said was damaged by a Russian drone. The pipeline carries Russian oil to Hungary and Slovakia.
The resumption of oil flows on Wednesday, which followed Orban’s defeat in an April 12 election, opened the way for EU ambassadors’ approval of the loan.
Yuliya Markuts, vice-president for macro and public finance at KSE Institute, an economic think-tank in Kyiv, estimated that the budget for defence spending will need to be revised higher by up to €10bn, depending on how the conflict unfolds on the front line.
Last year, Ukraine also raised its military expenditure forecasts, Markuts said, with part of that covered by government bond issuances as well as lending from the extraordinary revenue acceleration loans, a Group of Seven initiative.
“How will it be this year? It’s hard to say now, but there could be some kind of repeating this,” she said, adding that it is also possible the EU loan might cover the revised budget.
Cuts to public services
Economists had said Ukraine would start to run out of money by June if the EU loan was not disbursed by then, requiring deep cuts to public services.
Many Ukrainians breathed a sigh of relief after the aid package won approval from EU ambassadors on Wednesday. The humanitarian sector in Ukraine has already been hard hit by US aid cutbacks under President Donald Trump.
Hanna Fedotova, a nursery caregiver, said the EU funding provides stability for Ukraine’s state institutions, “and, crucially, for education and development”.
“This aid is about having confidence in tomorrow, the certainty that we will be able to keep doing our jobs,” Fedotova said in a basement nursery in the southeastern city of Zaporizhzhia, 40km from the frontline.
The EU loan needs to be repaid only if Russia makes war reparations to Ukraine.
President Volodymyr Zelensky has said that, even with the EU loan, Ukraine still needs additional funding for the war. “We talk about €90bn and say that this amount covers everything. That’s false,” Zelensky said last month.
Air defence
He said the loan allows Ukraine to order only 60% of the weapons its domestic industry has the capacity to produce. Ukraine also needs to find €5bn to strengthen its electricity sector after Russian attacks.
And, even though allies spent nearly $5bn on the Purl weapons programme last year, mostly air defence equipment, Zelensky said Ukraine needs $15bn. “We can’t protect everything, even though we must do so. So where to take the money from?” he said, adding he hopes defence co-operation agreements with Gulf states might provide additional funding.
The EU acknowledges its two-year loan covers only about two-thirds of Ukraine’s external financing needs. For 2027, international partners still need to commit the remaining financing, EU economy commissioner Valdis Dombrovskis said, though funding needs for this year will be covered.
Ukraine has other sources of financing. Prime Minister Yulia Svyrydenko said last week it will soon receive €2.7bn from the EU’s Ukraine Facility, after parliament approved some overdue reforms. Ukraine in February also agreed on a four-year, $8.1bn IMF loan.
All of this money comes with strings attached, including governance and tax reforms, some of them deeply unpopular. The IMF agreed last week to postpone the imposition of VAT on entrepreneurs after parliament baulked at the measure.
“Ukraine’s capacity to sustain the momentum of reforms will be the most pressing issue going forward,” Samoiliuk said. “Ukraine’s international partners should apply more pressure … and emphasise that Ukraine itself needs these reforms.”
