Ukraine in Focus

By Svitlana Morenets

Portrait of the week in Ukraine

• Kyiv released its draft budget for next year, which projects an 18.4% GDP deficit and £40bn in external financing needs. More below.
• The EU announced its 19th sanctions package, which includes a ban on Russian liquefied natural gas and new oil price cap, among other restrictions.
• Ukraine and Poland agreed to form a joint drone force that will run training programmes for their troops to counter Russian air attacks.
• Ukrainian drones struck one of Russia’s largest oil refining plants in the Bashkortostan Republic.
• The Trump administration approved its first Nato-funded military aid for Ukraine, with two shipments worth up to £370m each.
• Ukraine’s army chief Oleksandr Syrskyi dismissed two corps commanders following the loss of territory.
• ​​The Ukrainian parliament passed a law on a military ombudsman which is intended to protect soldiers’ rights and handle complaints.
• Volodymyr Zelensky will meet Donald Trump next week in New York at the UN.
• The US-Ukraine Reconstruction Investment Fund received its first American contribution of £55m, which Ukraine has to match.
• The European parliament will open its permanent representative office in Kyiv.
• Russia’s Transneft warned oil producers of possible output cuts after Ukrainian drones hit key ports and refineries.
• Some 76% of Ukrainians believe they can win the war if proper sanctions against Russia are introduced.
• Ukrainian children have been taken to at least 210 facilities inside Russia and Russian-occupied territories since 2022, where they were subjected to re-education or military training.

Wider reading on the war

Why Putin’s military drills are good news for the West – The Spectator

What connects Le Pen’s party with the Kremlin – European Pravda

As Russian army inches closer, Ukrainians must decide to stay or go – BBC

The devil in disguise: the Ukrainian orthodox priests who work with Russian secret services and justify the war – Ukrainian Pravda

Czech documentary on Russian disinfo over Ukraine exposes bitter societal rifts – Balkan Insight

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The analysis

Kyiv is running out of money

In all the speculation about when Russia might run out of money to fund its war in Ukraine, one fact has gone largely unnoticed: Ukraine’s pockets are emptying first. Kyiv has approved a draft State Budget for next year that devotes record sums for defence with a projected deficit of 18.4 per cent of GDP – some 2.4 trillion hryvnias (£46 billion). The IMF estimates the realistic deficit could be some £20 billion higher. In addition, the government still needs to plug a hole of nearly £6 billion in the current budget. As in previous years, the plan is to turn to allies, cap in hand, hoping that their generosity can keep pace with Ukraine’s mounting needs.

Ukraine spends 31 per cent of its GDP – roughly £92 billion a year – on the war, compared with Russia’s £120 billion war budget. Kyiv can cover only half of that amount through taxes and domestic borrowing, while the rest falls on the shoulders of its allies. ‘Plan A is to finish the war, Plan B is £92 billion,’ Volodymyr Zelensky said this week. No agreements or promises have yet been made that Ukraine’s partners are prepared to transfer such a vast sum.

Since February 2022, Kyiv has received more than £110 billion in financial aid from its allies, but none of it can be spent directly on military needs, even when the aid arrives with a surplus. Foreign financial assistance is allowed to cover only the social sector. In the new budget, Zelensky’s office plans to use these funds to raise pensions and the minimum wage, increase teachers’ salaries, provide more scholarships for students, build rehabilitation centres for veterans, create bomb shelters and offer compensation for Ukrainians whose homes were destroyed by Russian attacks. The government hopes this will help to make the war more bearable for the already worn-out population, though some accuse Zelensky of laying the groundwork for future elections.

Zelensky’s main trouble, though, is finding cash to pay salaries for Ukraine’s 800,000-strong army, compensation for the families of the missing and the dead (up to £280,000), the construction of fortifications and the purchase of ammunition and weapons. Given that funds for weapons have already been diverted from the soldiers’ pay for this autumn, and that in the past month alone Russia has returned the bodies of at least 2,000 fallen Ukrainian defenders, the accumulated expenses pushed these payments far beyond the levels originally set in the budget.

There are, in theory, two obvious solutions. First, to convince Ukraine’s partners to lift the ban on using at least some of the financial aid for military needs. The UK has recently set a precedent, allocating about £2.4 billion for Ukraine’s defence industry under the G7 loan covered by profits from frozen Russian assets. Second, more than £240 billion in frozen Russian assets held in Belgium could more than cover all of Ukraine’s needs at no cost to European taxpayers. The Trump administration has recently been pressing the EU to release the funds, but that call went unanswered.

In pictures :

Quote of the week

‘Every day of bargaining between the US and Europe over who and which sanctions to impose on Russia costs us many lives of our citizens. It is dangerous and, frankly, unfair’

–  Volodymyr Zelensky expresses his frustration over the allies’ unwillingness to impose harsher sanctions against Russia.

The war in numbers

Ukraine’s defence budget for next year

£60 billion

about £1 billion is for the domestic weapons production

Convicts released for mobilisation into Ukraine’s army

more than 10,100

since May last year

Ukrainians categorically reject the Russian peace terms

75%

while 74% support freezing the current front line

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A note from the author: Thank you for your interest in this newsletter. I hope it helps you to understand my country – and the war – better from a Ukrainian perspective. If you enjoy the Ukraine in Focus newsletter, please forward it to someone you know: you can sign up here. My writing for The Spectator can be found here. All feedback is welcome: svitlana@spectator.co.uk