The Draft State Budget for 2027 is based on the assumption that the full-scale war will continue throughout next year. The Government expects real GDP growth of 1.3%, average inflation of 8.6%, and an average exchange rate of UAH 47.1 per US dollar. At the same time, these projections depend heavily on the timely receipt of $91.6 billion in external financing. The Government also acknowledges that the forecast approved in early June does not yet fully reflect the impact of the destruction caused over the summer and may be revised ahead of the second reading.

These findings are presented in KSE Institute’s analytical review, “Draft State Budget 2027: Priorities, Risks, and Opportunities.”

Defence and security remain the top priority. Spending under the Ministry of Defence’s budget programs is planned at UAH 3.76 trillion — UAH 318.3 billion, or 9.2%, more than under the amended 2026 plan. The increase was made possible primarily by incorporating the second €45 billion tranche of the Ukraine Support Loan (USL) into the budget. At the same time, the allocated funding may prove insufficient if decisions are made during the year to increase military pay, introduce additional financial incentives for military service, or expand procurement of military equipment and weapons.

State budget revenues are expected to rise to UAH 5.65 trillion. The main sources will be tax revenues of UAH 2.86 trillion and international assistance of UAH 2.49 trillion. Tax revenues are projected to increase by UAH 354 billion, or 14.1%, driven mainly by import VAT, personal income tax, the military levy, and excise taxes. At the same time, the general fund’s own revenues, excluding international assistance and interbudgetary transfers, are expected to amount to UAH 2.46 trillion — UAH 7 billion less than under the amended 2026 plan. The special fund, meanwhile, is expected to grow by 33.6% to UAH 2.43 trillion.

Part of the projected revenues still depends on decisions that have yet to be adopted. A total of UAH 117.3 billion is expected to come from amendments to tax legislation, including a higher VAT rate, taxation of international parcels, the extension of the 50% corporate income tax rate for banks, and an additional increase in fuel excise taxes. The Government expects another UAH 64.9 billion from reducing customs duty evasion, but these funds will be transferred to the special fund only if customs revenues actually exceed the target.

The state budget deficit is expected to rise to UAH 1.67 trillion, or 15% of GDP, compared with an estimated UAH 1.25 trillion, or 12.4% of GDP, in 2026. As a result of new borrowing, state and state-guaranteed debt could increase to 113.9% of GDP by the end of 2027. To finance the deficit, the Government plans to attract UAH 1.82 trillion, or $38.7 billion, in external loans. However, UAH 1.54 trillion, or $32.6 billion, of this amount currently has no confirmed sources of financing or corresponding commitments from partners. A shortfall in the required volume of external financing remains the main risk to fiscal stability.

Local budget resources are expected to increase to UAH 1.06 trillion in 2027, while local governments will become more dependent on interbudgetary transfers. The share of transfers in local budget revenues is expected to rise by 5.5% to 33%. The Government also proposes reducing the share of personal income tax allocated to local budgets from 64% to 60%. Instead, a UAH 18.2 billion subvention is planned to compensate for accumulated tariff differences. Unlike personal income tax revenues, which local authorities could use at their own discretion, this subvention will be earmarked for a specific purpose.

Further damage to the energy sector, lower exports, and continued employment losses remain additional risks. Under the adverse scenario, an energy supply deficit of 30–50%, a 20–40% decline in goods exports, and a loss of 350,000–450,000 employed people could reduce real GDP by 4.1–6.8%, while consolidated budget tax revenues could fall UAH 140–230 billion below the baseline forecast. Additional pressure on the budget could come from higher defence spending, losses at state-owned enterprises, payments under state guarantees, and court rulings against the state.