The draft State Budget for 2026 indicates a continuation of cautious planning, taking into account the ongoing risks to the economy and the critical role of external financial support. It is based on a pessimistic macroeconomic development scenario, which assumes that the war will continue in 2026. These findings are based on an analysis conducted by the Center for Public Finance and Governance at the KSE Institute. 

Defense and security spending remains a priority for 2026. The Ministry of Defense’s budget of UAH 1,923.6 billion is essentially the same as the 2025 funding level. Together with the Finance Ministry’s reserve of UAH 200 billion, this is sufficient to maintain the current level of capabilities. In case of decisions to increase the level of mobilization, raise military salaries, create new financial incentives for military recruitment, or expand the procurement of equipment and weapons, financial resources may be insufficient.

42.3% of all expenditures in the 2026 state budget will be financed by external revenues. This makes financial support from partners extremely important for maintaining financial stability. In addition, tax revenues are expected to grow, particularly from personal income tax, corporate income tax, VAT, and excise tax. Tax revenues are expected to be 18% higher than in 2025 and bring in almost UAH 2.5 trillion to the budget. Meanwhile, external borrowing is planned to increase by 21.7% and replenish the treasury by UAH 2.1 trillion. Together, taxes and net external borrowing will cover 93.9% of the 2026 budget expenditures.

Tax revenues will grow mainly due to inflationary factors, economic de-shadowing, improving tax debt management, and taxation of revenues received through digital platforms. These measures will generate the following revenues: UAH 60 billion from improving the efficiency of customs operations and UAH 26 billion from improving tax debt collection mechanisms. The Government expects to receive an additional UAH 14 billion in personal income tax and military tax revenues from the taxation of income received through digital platforms.

At the same time, the Government will continue supporting businesses — almost UAH 1.4 billion has been allocated to a grant program for business creation and development. UAH 18 billion will be allocated to finance the “Affordable Loans 5-7-9%” program. Agricultural producers will receive UAH 9.5 billion in support, and farms will get UAH 2.5 billion. UAH 1 billion will be spent on compensating for the costs of humanitarian demining of agricultural lands.

Expenses of the Ministry of Veterans Affairs will increase by 51.5% compared to 2025, reaching UAH 17.9 billion. Of this amount, UAH 9.7 billion will be allocated as subsidies to local budgets for providing housing to war veterans with disabilities of groups I and II and their families (UAH 5.7 billion); ensuring the activities of specialists supporting war veterans (UAH 2.9 billion); and implementing a public investment project for the development of veterans’ spaces (UAH 1.1 billion).

Healthcare spending will increase mainly due to funding for the medical guarantees program (+16 billion UAH). These funds cover medical services for psychological and psychiatric care, surgical operations, treatment of tuberculosis, infertility, etc. Funding of the program, which provides procurement of medical equipment and reconstruction of infrastructure for healthcare facilities, has been increased by 104%.

School nutrition, teacher salary growth, and scientific research are priority areas for increasing spending in education and science. Teachers’ salaries will increase by 50% compared to 2025. 4.4 million students will be covered by the reform, which will triple funding for school nutrition year-on-year. Spending on the program “Support for priority areas of scientific research and scientific and technical (experimental) development, scientific and scientific and technical activities of higher education institutions and scientific institutions” will increase almost fourfold (from UAH 1.6 billion to UAH 6.3 billion).

The largest expenditures of the Ministry of Social Policy will be pension payments, which will increase by UAH 14.4 billion in 2026, to UAH 251.3 billion. In addition, funding for social protection of children and families will be almost doubled, to UAH 52.7 billion. These funds will be used to increase the one-time payment for the birth of a child from UAH 10,320 to UAH 50,000 and to introduce the “eYasla” (early childhood care program) and “Pakunok Shkolyara” (school starter kit) programs. UAH 8.8 billion will be allocated for providing modern prostheses and rehabilitation services to persons with disabilities within the framework of social protection programs.

The subsistence minimum will increase by almost 10% compared to 2025 for all socio-demographic groups, and the minimum wage from January 1, 2026, will be UAH 8,647 (+8.1%). Consequently, some social benefits and pensions linked to the subsistence minimum will automatically increase. Thus, the minimum pension will be UAH 2,595, and the maximum will be UAH 25,950. This growth will partially offset the impact of inflation and support vulnerable social groups. 

The Draft State Budget for 2026 contains a number of innovations. One of them is the removal of local budget surpluses of the temporarily occupied territories. These funds will no longer remain at the communities’ disposal but will be automatically transferred to a special state budget fund. The Government will use them to provide housing for internally displaced persons. This way, they will help solve one of the most critical social issues.

Another innovation was using data from the State Migration Service on population size. Before, the data from the State Statistics Service was used for this. It was just an estimate and didn’t really show the actual demographic situation. For example, last year, Ukraine’s population was estimated at 32.2 million people, but this year it’s 28.6 million. More relevant data will help to calculate the tax capacity of communities more accurately. The draft budget anticipates a significant growth of local community resources. But the balance between own revenues and interbudgetary transfers will change and limit autonomy in using these funds.

The state budget deficit is expected to reach 18.4% of GDP. It will be financed through new borrowings, which will lead to an accumulation of state and state-guaranteed debt totaling 106% of GDP by the end of 2026.