Ukraine spent $20.8 billion to defense against Russia’s full-scale invasion, or about 75% of its total state budget expenditures of $27.9 billion in the first quarter of 2025, the Kyiv School of Economics (KSE) Institute analytic center estimated.
Ukraine’s Ministry of Defense, the key stakeholder in spending for the military, laid out $16.4 billion – 78.8% of the $20.8-billion invoice for the war in the first quarter.
“Funding for defense and security needs is increasing, significantly outpacing the growth of all other expenses,” KSE Institute wrote.
Ukraine’s measures to mobilize state revenues paid off – the state budget received 14.3% more taxes than expected in the first quarter, according to KSE Institute. “The main reason for this growth was the changes in tax policy adopted at the end of last year and rising inflation,” the authors wrote in the press release dedicated to the news issues of the Fiscal Digest.
Ukraine secured foreign aid of $2.3 billion in grants, which made up 11.6% of total revenues. “Major loan disbursements included €3.5 billion ($3.97 billion) from the EU under the Ukraine Facility, CA$2.5 billion ($1.81 billion) from Canada, and $2.4 billion ($1.74 billion) from the EBRD,” KSE Institute wrote in the Fiscal Digest.
Ukraine is seeking a balance between the urgent existential need to fund its defense against Russia and its short- and long-range objective to strengthen its macroeconomic stability.
Russia’s war against Ukraine pushed the state budget deficit from a pre-February 2022 figure of 3.8% of GDP to 20% of GDP now, Ukraine’s finance minister Serhii Marchenko told G7 representatives, suggesting they finance Ukraine’s military and integrate Ukrainians into Europe’s security system.
Accordingly, this solution would decrease the burden of excessive war spending, protect Europe with the skills of the Ukrainian Armed Forces (AFU), and stabilize the economy.
Tax intake exceeded Ukraine’s expectations and remained key for revenues
In the first quarter of 2025, Ukraine exceeded the planned tax allocations by 14.3%, amounting to $11.8 billion, in contrast to the $10.3 billion planned for, collecting more taxes than the previous year. “Total tax revenues in Q1 2025 increased by 11.1% compared to the same period in 2024 – from $10.6 billion to $11.8 billion,” KSE Institute wrote.
Ukraine’s Value Added Tax (VAT) remained the largest source of budget revenue in the first quarter of 2025, contributing 21.6% of total revenues, followed by personal income tax (PIT) and the military levy, which together accounted for 11.3%, KSE analysts estimated.
A total 34.7% of all state revenues are non-tax revenues in Q1 2025, mainly generated by military aid, which amounted to $6.6 billion. Ukraine received about $1 billion (£742 million) in financial assistance directed toward military purposes from the United Kingdom. These funds were received under the ERA program, which are guaranteed by the proceeds of frozen Russian assets.
Grants accounted for 11.6% of total budget revenues during the first quarter – cash Ukraine will not need to repay.
Russia’s war against Ukraine keeps straining the budget
Ukraine spent almost $6 billion more on defense in 2025 than in 2024 – the need to allocate more to fight against Russia keeps growing in the war-torn country, straining the budget despite increasing revenue.
Overall, in Q1 2025, budget expenditures rose to over $27.9 billion, marking a 26.6% increase over last year.