UPDATE 1-Ukraine plans 2026 budget with 18.4% deficit, PM says

Ukraine's government has prepared a draft 2026 budget, aiming for a deficit of 18.4% of gross domestic product and allocating more funds for its defence efforts, Prime Minister Yulia Svyrydenko said on Monday. The 2026 budget draft envisages 2.8 trillion hryvnias ($67 billion) in revenues and about 4.8 trillion hryvnias in expenditures, she said in a post on the Telegram app.

"Now all of Ukraine must be in the army or for the army. This is reflected in the 2026 state budget," Svyrydenko said. "The key budget priority is security and defence, our social resilience."

Ukraine plans to increase its budget revenues by about 447 billion hryvnias next year, Svyrydenko said, but did not specify any measures. The bulk of the state revenues would be channelled to the defence. The budgeted defence spending would grow by 168.6 billion hryvnias to around 2.8 trillion hryvnias or about 27.2% of the GDP next year.

The government also plans to allocate 44.3 billion hryvnias for domestic weapons production, officials said. Defence Minister Denys Shmyhal said that Ukraine would need at least $120 billion next year for its defence, as active combat along more than 1,000 kilometres of the frontline continues into 2026. This included both spending for the army and also weapons supplies from Ukraine's Western allies.

As the war with Russia drags on into its fourth year, the cost of fighting is also increasing. Ukrainian officials said that the war costs about $172 million a day now, compared with about $140 million a year ago. With the bulk of the state revenue planned for the army, Ukraine remains heavily reliant on foreign financial aid to be able to cover its social and humanitarian spending.

However, Ukraine faces challenges in mobilizing financial aid from its partners. The contributions from the United States, once Ukraine's biggest donor, have decreased since President Donald Trump returned to the White House. The European Union is now Ukraine's biggest financial backer. The government is also asking for a new lending program from the International Monetary Fund.

The finance ministry said that the draft budget planned for about 2.1 trillion hryvnias ($50 billion) in foreign financing next year. The government was in talks with the EU, G7 countries, the IMF, the World Bank and other partners on financing for the next year, the finance ministry said.

Finance Minister Serhiy Marchenko estimated the unfunded gap for the 2026 budget at 16 billion euros. (Additional reporting by Yuliia Dysa; Editing by Vijay Kishore)

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