UKRAINE’S WARTIME ECONOMY: COUNTING THE COSTS

Kyiv has bowed to the IMF’s more pessimistic arithmetic: Ukraine will need $65bn in external financing through 2027, not the $38bn its government once insisted would suffice. The revision lays bare both the scale of wartime fiscal dependence and the delicate choreography between Western donors, the Fund, and a state whose budget is dominated by the cost of survival.

For months, Ukrainian officials clung to rosier projections. But the IMF—whose imprimatur unlocks other donors’ wallets—has now persuaded Kyiv to adopt its bleaker view. The $65bn figure, shared with the European Commission, is less a forecast than a financing coordination device: a number around which allies can structure their support. Behind it sits the Fund’s judgement that war costs will persist longer, energy infrastructure will need repeated repairs, and growth will be fitful.

A fresh IMF package of around $8bn has been floated. That would sit atop Ukraine’s existing $15.5bn Extended Fund Facility, due to expire in 2027. But the real value of an IMF deal is political: it gives donors comfort that Kyiv is committed to fiscal discipline and reform, however notional during wartime.

Budgets at gunpoint

Roughly 60% of government spending now flows to the war effort. In practice, this means that domestic tax revenues buy ammunition and uniforms, while Western transfers cover pensions, teachers’ salaries and hospitals. It is a neat division of labour that allows Ukraine to function, but also exposes it to the vagaries of Washington and Brussels.

The EU’s €50bn Ukraine Facility (2024–27) offers a semblance of predictability, though disbursements are tied to reform milestones. Brussels is also toying with a more radical “reparations loan,” leveraging immobilised Russian assets to raise cash upfront. Such innovations are ingenious—but politically fragile.

Debt tomorrow, survival today

On paper, Ukraine’s debt remains sustainable: concessional lending and grants keep ratios manageable. But 2027–30 looms as a danger zone. The current IMF programme will expire, the EU Facility may lapse, and reconstruction spending will balloon. Unless grants and asset-backed schemes dominate, debt-to-GDP could swell uncomfortably.

Meanwhile, the latest damage assessment pegs recovery needs at over $500bn—nearly three times Ukraine’s annual output. That is a balance sheet for another day, to be financed by a mix of foreign aid, private capital and, if lawyers can deliver, Russian reparations.

The political economy of survival

The IMF’s new estimate is not merely a recalculation; it is a recognition that Ukraine’s war is as much fiscal as military. Without external cash, the state would collapse long before its army. Donors understand this, but their voters may not.

Ukraine’s acceptance of the $65bn figure is thus a double-edged move: it builds credibility with creditors but also raises expectations. To bridge the gap, Kyiv will need not just loans, but large, timely grants and creative financing devices. The risk is that donor fatigue sets in before the guns fall silent.

Nathalie Besèr, freelance journalist