SITUATION IN UKRAINE: 12 – 18, 2024.

The draft State Budget for 2025 shows that the Government expects the war to continue next year. At the same time, defense and security expenditures in 2025 formally plan to leave at the 2024 level (excluding inflation), although they may be increased again during the next year. Thus, on September 13, the Cabinet of Ministers approved the draft (No. 12000) of the State Budget of Ukraine for 2025. As reported by the Cabinet of Ministers, the document provides three key priorities – defense, financing of protected items, and support for regions and businesses. All state internal resources will be used for defense in 2025.

Preliminary, the proposed draft law:

State revenues in 2025 are planned to be 2.3 trillion hryvnia, but they will grow by 192 billion UAH or 9% compared to the 2024 plan (2.1 trillion hryvnia).

Expenses will increase by 18% - 3.9 trillion hryvnia versus 3.3 trillion hryvnia in 2024. At the same time, The Verkhovna Rada voted this year to increase expenditures by almost UAH 500 billion. Thus, if compared with the current version of the 2024 budget, the 2025 budget expenditures will increase by -3%.

The budget deficit will be - 1.54 trillion hryvnia (in 2024 – 1.57 trillion hryvnia) - 19% of GDP (in 2024 the deficit was 20% of GDP) or 67% of budget revenues.

Ukraine's GDP growth will slow down somewhat and by the end of 2025 it is expected to be 2.7% (UAH 8.4 trillion), in 2024 - 3.5% (UAH 7.4 trillion), and in 2023 GDP will grow by 5.3%.

The hryvnia exchange rate in 2025 will be on average - 45 UAH/$ 1, this year the average annual rate was set at - 41.2 UAH/$ 1.

Defense spending will increase to UAH 2.22 trillion (26.3% of the projected GDP). Of these, UAH 1.1 trillion will go to military salaries. And almost UAH 575 billion will go to the production, purchase, and repair of military equipment. The overall defense budget for 2024 was almost identical: 1.7 trillion was allocated immediately. Later, the Cabinet of Ministers demanded to add another 500 billion UAH, which was not enough for military salaries.

Thus, the Government expects the war to last throughout the next year, 2025.

It is expected that the Ministry of Defense will receive UAH 1.56 trillion (+35%), the Main Intelligence Directorate – UAH 24.9 billion (+37%), the Foreign Intelligence Service – UAH 6.5 billion (+8%), the Security Service of Ukraine – UAH 41.7 billion (+19%), and the National Security and Defense Council – UAH 322.8 million (+3%).

State borrowings of the general fund are planned for UAH 2.237 trillion (about USD 54 billion), including internal - UAH 579.2 billion (about USD 14 billion) and external - UAH 1.658 trillion (about USD 40 billion). Of these, UAH 129.39 billion will go to repaying the external debt, after which external financing will amount to UAH 1.529 trillion. Not all of the external borrowings have been confirmed by international partners yet, which requires further work.

The government expects public debt to fall from the projected 100.5% of GDP in 2024 to 97%.

The maximum volume of public debt as of December 31, 2025, is set at UAH 8 trillion 182.83 billion. For comparison, the maximum volume of public debt as of December 31, 2024, is up to UAH 7 trillion 734.7 billion. As of July 31, 2024, the public and publicly guaranteed debt of Ukraine amounted to UAH 6 trillion 374.0 billion.

Consumer price growth will accelerate in 2025 to 9.5% compared to 2024 (expected - 7.9%)

The unemployment rate will decrease slightly to 17.7% from 18.2% in 2024.

The average monthly salary is projected to grow in 2025, both in nominal terms by 18.5% and in real terms by 8.1% compared to the previous year.

The average monthly salary is set at UAH 24,389. In 2024 - UAH 20,581.

It is planned to introduce a 3-year moratorium on increasing social benefits. In 2025, the basic state social standard, including the minimum wage and the subsistence minimum, will remain at the level of December 2024, based on the fact that the subsistence minimum per person is set at 2920 hryvnia.

Raising taxes. For 2025, an additional resource provided for by the draft amendments to the Tax Code of Ukraine on the specifics of taxation during the period of martial law" (No. 11416-d) for UAH 122.4 billion has been taken into account. In particular, an increase in the military tax rate from 1.5% to 5% will provide UAH 107.7 billion; the establishment of a military tax for taxpayers on a simplified taxation system, namely, for individuals-entrepreneurs of groups I, II, III, and IV - UAH 13.7 billion, legal entities of group III - UAH 929 million.

There is a reduction in spending on social protection. Thus, UAH 420 billion has been allocated to support socially vulnerable citizens (UAH 50 billion in 2024, UAH 470 billion), of which UAH 280 billion will be directed to subsidize the Pension Fund. And UAH 80.8 billion will be directed to the social protection of citizens.

The number of recipients of subsidies and benefits will decrease by 400 thousand (by 12.5%). The total amount from the budget will be 15.2% less (a reduction from 49.9 billion hryvnia to 42.3 billion hryvnia). It is planned to spend 42.32 billion UAH on paying housing subsidies in 2025. They will be received by 2.8 million families.

They plan to reduce spending on financing veteran policy measures in 2025: from UAH 13 billion in 2024 to almost UAH 6 billion.

For medical expenses is 214 billion UAH (in the plan for 2024 there were 207 billion UAH).

For education - 167 billion UAH (in the plan for 2024 there were 174 billion UAH)

For the development of culture and information space - UAH 9.6 billion. (in 2024 it was UAH 10.2 billion).

For the functioning of the Telemarathon - UAH 1.6 billion (in 2024 it was UAH 1.5 billion).

To support scientific research in the field of the military-industrial complex, energy, and energy efficiency - UAH 14.0 billion.

Road fund, 43.2 billion UAH is allocated here. More than half of this amount - 24.35 billion UAH. The government will spend on servicing the debts of the former "Ukravtodor" (Recovery Agency).

Fewer funds have been allocated for business support. Several support programs within the Ministry of Economy's expenditures have disappeared from the 2025 plan.

Business support includes funding for the Entrepreneurship Development Fund - UAH 18 billion (as of 2024) for the provision of preferential loans under the 5-7-9% program, as well as UAH 1.4 billion for grants for businesses.

To support the regions, UAH 12.2 billion has been allocated in the form of a subvention to compensate for the difference in tariffs, which will allow local budgets to ensure the availability of utilities for the population.

In general, the draft budget proposed by the Government will still pass the "sieve" of the Verkhovna Rada, where it is expected to undergo significant changes. Foreign donors, in particular, the IMF, may also make their adjustments.

 

The situation on the front in Donetsk Oblast remains difficult for Ukrainian troops, as Russian troops maintain a relatively high rate of advance. In the Pokrovsk direction, in the area of the so-called Nevelsky salient, Russian troops advanced into the settlement of Zhelanne Pershe, most of which had already been captured. Fighting is already underway on the approaches to the settlement of Zhelanne Druge. The Russian Federation announced the complete capture of the settlement of Ukrainsk (the General Staff of Ukraine has not yet confirmed this). Earlier, to the east of the settlement of Ukrainsk, the Russians captured the settlement of Lysivka. In this way, the Russian Federation is trying to develop an offensive towards the settlement of Girnyak (fighting is already underway on the outskirts), as well as completely push the Ukrainian Armed Forces beyond the Vovcha River. If the Russian advance in this direction continues, Ukraine will soon have to abandon the so-called Nevelsky salient.

On the Liman sector of the front, Russian troops advanced about three kilometers to the west in the direction of the settlements of Nevske and Ternove.

Russian troops are also advancing west of Krasnogorivka, the fighting has reached Ostre. The loss of Ostre threatens the Ukrainian Armed Forces' fortified area in Georgiika and Maksimilianivka, which are covering Kurakhove from the east.

In the area of Ugledar, the Russians are advancing south of the recently captured Vodyanoye, approaching Ugledar from the northeast. The Russian Federation is also making significant progress near Velyka Novosilka, towards the village of Zolota Niva from the recently captured Prechystivka. There are military actions in Zolota Niva.

In the Kupyansk direction, the Russians are advancing in the direction of the Oskil River in the Kharkiv region. Namely, in the Peschane area (4 kilometers left to Oskil) and to the south - Makiivka.

The rapid advance of the Russian Federation in the Donetsk region forced the Ukrainian command to begin redeploying some units from the Kursk region to strengthen the defense near the city of Pokrovsk.

At the same time, the counteroffensive of Russian troops in the Kursk region has not yet yielded any tangible results. It is obvious that the Russian leadership, for whom the Ukrainian invasion of the Kursk region is a significant information irritant, will make great efforts to eliminate the Ukrainian bridgehead before the US elections, to deprive Ukraine of its advantage in potential negotiations with the new US Presidential Administration. In turn, Ukraine will strive to do everything to gain a foothold in the Kursk region, at least until the US elections, the elimination of the Kursk bridgehead during this period could cause significant political damage to the Ukrainian leadership. The loss of the Kursk bridgehead will cause a storm of criticism against the President of Ukraine not only within the country but also abroad, where V. Zelensky may be accused of the inappropriateness of conducting the Kursk operation, as well as of worsening the situation in the Pokrovsk direction in the Donetsk region.

In general, in the Kursk sector, Russian troops are advancing southwest of Korenevo. The fighting is taking place on the western, left flank of the Ukrainian bridgehead in the Kursk region. Russian troops have pushed the Ukrainian Armed Forces back from the Seim River, removing the logistics problem for the Russian troop group in the Glushkovo District, which could previously only be supplied via river crossings. The Ukrainian Armed Forces are counterattacking further west across the border with the Glushkovo District. The Russian Defense Ministry announced attacks by the Ukrainian Armed Forces in the areas of Novy Put, Medvezhye, and Vesyoloye. Ukrainian troops are trying to enter the rear of the Russian group from the south, which is advancing to the east.

Lifting restrictions on long-range strikes against the Russian Federation and the "Victory Plan" for Ukraine. Ukrainian President V. Zelensky intends to present his "Victory Plan" to Western partners to increase funding and military aid to Ukraine amid a growing budget crisis.

According to rumors, the "Victory Plan" that Ukraine wants to present includes the following points:

1. A list of 30-150 military, economic, and logistical targets on the territory of the Russian Federation that Ukraine wants to hit and the nomenclature of missile systems (launchers and several missiles) that Ukraine needs to receive from the USA, Great Britain, Germany, and France for this. This primarily concerns long-range ATACAMS missiles (range of use over 500 km), as well as some modifications of SCALP and ShadowStorm missiles. The targets for these strikes should be military, economic, and logistical facilities in the European part of the Russian Federation, including Moscow.

2. New military aid packages – armored vehicles, artillery, aviation – to arm Ukrainian reserves and prepare a new counteroffensive.

3. Creation of a no-fly zone over western Ukraine (by air defense forces of the USA, Poland, Romania, and other countries), new large-scale deliveries of air defense systems to Ukraine to cover a new counteroffensive and protect the Ukrainian energy sector.

4. New financial aid packages for Ukraine to overcome the budget deficit and sanctions against third countries that maintain trade relations with the Russian Federation.

5. Guarantees of future NATO membership and security.

According to the President of Ukraine, if it is possible to destroy the Russian military and economic infrastructure on the European territory of the Russian Federation, the Russian Federation should agree to a peaceful settlement on Ukraine’s terms.

There are active discussions regarding this issue in Western countries. The US and other NATO countries are in no hurry to give Ukraine the green light to use Western weapons to strike Russian territory, as they believe that this could draw them into a war and provoke a nuclear conflict. At the same time, US President J. Biden's administration is facing pressure from some NATO allies to take a more aggressive stance.

A complete refusal by Western partners to allow Ukraine to strike with Western weapons at Russian territory would be too painful for the Ukrainian leadership, so most likely the request will be partially satisfied.

It is possible that as a result of the allies' discussions on this issue, Ukraine will be allowed to strike Russia with British Storm Shadows or French Scalps. And the US ban on the use of long-range versions of ATACMS will remain in force. Missiles with a range of 250 kilometers can hit 14 airfields and airports, one oil refinery, as well as the headquarters of the Southern Military District in Rostov-on-Don, from where, presumably, Russian military operations in Ukraine are controlled.

At the same time, this decision may provoke a new round of escalation, since the Russian Federation perceives it as a direct intervention of Western countries in the conflict. Russia has repeatedly stated that it is preparing an appropriate response to such actions.

It is noteworthy that the Russian military withdrew ships from the port of Novorossiysk, the second most important naval base in the Black Sea. It was to Novorossiysk that the Black Sea Fleet ships were redeployed from Sevastopol at the end of 2023 after the Ukrainian strikes. Aircraft that were in the ATACMS missile strike zone are also being withdrawn from the probable zone of Western missiles.

Russia's actions may indicate that Moscow considers the issue of lifting restrictions on the use of Western missiles to strike targets in Russia to be resolved.

In general, the preconditions for a new round of escalation between the Russian Federation and Western countries are being formed. Despite this, the world is also seeing an intensification of dialogue on a peaceful settlement. So far, most approaches do not concern ending the war but are an attempt to reduce tension and freeze the conflict. Since all peace initiatives do not contain an attempt to establish a new geopolitical balance. Therefore, the likelihood that the parties will be able to agree is very low until the geopolitical competition between the United States, China, and the Russian Federation is resolved. It seems that discussions around peace talks are increasingly shifting to the Chinese platform and are reduced to discussing various variations of the Chinese peace plan.

The intrigue remains about what the format of the Second Global Peace Summit will be, whether Ukraine and the Russian Federation, as well as China, will participate in it simultaneously, or whether they will hold their separate event. The situation will most likely be adjusted depending on the results of the confrontation in the US Presidential elections. Depending on who wins – Republican candidate D. Trump or Democratic candidate K. Harris, the position of the Ukrainian leadership and the attitude of the main negotiators to the peace process will be transformed to some extent.

Former US President D. Trump's position on peace talks. Republican presidential candidate D. Trump has repeatedly said that if elected, he would end the war in Ukraine before his inauguration. However, he has not provided details of his plan.

But Republican vice presidential nominee J.D. Vance said in an interview with Sean Ryan on September 12 that Trump's plan could include the creation of a special demilitarized zone between Ukraine and Russia.

Ukraine will retain its sovereignty, but at the same time it will have to sacrifice part of its territory and give Russia guarantees that it will not join NATO. We are talking about freezing the war and Ukraine's neutral status. The situation is worse than during the Istanbul agreements in March 2022.

This option will be perceived by Ukrainian society as a defeat (the overwhelming majority continues to advocate war until all territories are liberated by at least 60%), which the opposition can actively use. Political support for the country's leadership will begin to decline. And ultimately, this may even lead to the loss of power of the President's team.

At the same time, the second assassination attempt on D. Trump, which took place on September 15, a few days after J.D. Vance's speech, could have given rise to suspicions about the presence of a Ukrainian trace in this case. The man detained during the probable assassination attempt on D. Trump, as reported by Western media, allegedly expressed support for Ukraine.

For its part, Ukraine is trying to distance itself as much as possible from this event, since it expects to maintain normal relations with the team of the former US President in the future (this is especially important if D. Trump wins the elections). This is why Ukrainian President V. Zelensky quickly responded and sharply condemned the new assassination attempt on US presidential candidate Donald Trump.

We warned two months ago that an assassination attempt on D. Trump could be repeated. This forecast came true, which may indicate that the first assassination attempt was probably organized by a group of people who set themselves the goal of physically eliminating D. Trump (and then the attempts will continue).

Maps of military operations.

Kursk region.

Donetsk region.

Domestic policy.

Draft State Budget for 2025.

On September 13, the Government approved the draft (No. 12000) of the State Budget of Ukraine for 2025, which has already been submitted to the Verkhovna Rada of Ukraine for consideration. As reported by the Cabinet of Ministers, the document provides three key priorities - defense, financing of protected items, and support for regions and businesses. All state internal resources will work for defense in 2025.

Preliminary, according to the proposed draft law:

State revenues in 2025 planned – 2.3 trillion hryvnia, they will grow by 192 billion UAH or 9% compared to the 2024 plan (2.1 trillion hryvnia).

Expenses are 18% higher - 3.9 trillion hryvnia versus 3.3 trillion hryvnia in 2024. At the same time, The Verkhovna Rada voted this year to increase expenditures by almost UAH 500 billion. Thus, if compared with the current version of the 2024 budget, the 2025 budget expenditures will increase by -3%.

The budget deficit will be UAH 1.54 trillion (in 2024 – UAH 1.57 trillion) – 19% of GDP (in 2024 the deficit was 20% of GDP) or 67% of budget revenues.

Ukraine's GDP growth will slow down somewhat and by the end of 2025 it is expected to be 2.7% (UAH 8.4 trillion), in 2024 - 3.5% (UAH 7.4 trillion), and in 2023 GDP will grow by 5.3%.

The hryvnia exchange rate in 2025 will be on average - 45 UAH/$ 1, this year the average annual rate was set at - 41.2 UAH/$ 1.

Defense spending will increase to UAH 2.22 trillion (26.3% of the projected GDP). Of these, UAH 1.1 trillion will go to military salaries. And almost UAH 575 billion will go to the production, purchase, and repair of military equipment. The overall defense budget for 2024 was almost identical: 1.7 trillion was allocated immediately. Later, the Cabinet of Ministers demanded to add another 500 billion UAH, which is not enough for military salaries.

Thus, the Government expects the war to last throughout the next year, 2025.

It is expected that the Ministry of Defense will receive UAH 1.56 trillion (+35%), the Main Intelligence Directorate – UAH 24.9 billion (+37%), the Foreign Intelligence Service – UAH 6.5 billion (+8%), the Security Service of Ukraine – UAH 41.7 billion (+19%), and the National Security and Defense Council – UAH 322.8 million (+3%).

State borrowings of the general fund are planned for UAH 2.237 trillion (about USD 54 billion), including internal - UAH 579.2 billion (about USD 14 billion) and external - UAH 1.658 trillion (about USD 40 billion). Of these, UAH 129.39 billion will go to repaying the external debt, after which external financing will amount to UAH 1.529 trillion. Not all of the external borrowings have been confirmed by international partners yet, which requires further work.

The government expects public debt to fall from the projected 100.5% of GDP in 2024 to 97%.

The maximum volume of public debt as of December 31, 2025, is set at UAH 8 trillion 182.83 billion. For comparison, the maximum volume of public debt as of December 31, 2024, is up to UAH 7 trillion 734.7 billion. As of July 31, 2024, the public and publicly guaranteed debt of Ukraine amounted to UAH 6 trillion 374.0 billion.

Consumer price growth to accelerate to 9.5% in 2025 compared to 2024 (expectations: 7.9%)

The unemployment rate will decrease slightly to 17.7% from 18.2% in 2024.

The average monthly salary is projected to grow in 2025, both in nominal terms by 18.5% and in real terms by 8.1% compared to the previous year.

The average monthly salary is set at UAH 24,389. In 2024 - UAH 20,581.

It is planned to introduce a 3-year moratorium on increasing social benefits. In 2025, the basic state social standard, including the minimum wage and the subsistence minimum, will remain at the level of December 2024.

It is proposed to establish from January 1, 2025, the subsistence minimum per person for 2920 hryvnia, and the main social and demographic groups of the population:

  • children under 6 years of age – 2563 hryvnia;

  • children aged 6 to 18 years – 3196 hryvnia;

  • able-bodied persons – 3028 hryvnia;

  • able-bodied persons, used to determine the basic salary of a judge - 2102 hryvnia;

  • able-bodied persons, used to determine the official salaries of employees of other government agencies whose remuneration is regulated by special laws, as well as employees of tax and customs authorities - 2102 hryvnia;

  • able-bodied persons, used to determine the official salary of a prosecutor of the district prosecutor's office - 2102 hryvnia;

  • persons who have lost their ability to work (minimum pension) – 2361 hryvnia;

  • persons who have lost their ability to work used to determine the amount of additional payment for living in areas of radioactive contamination, including by court decisions - 1600 hryvnia.

 

Raising taxes. For 2025, an additional resource provided for by the draft amendments to the Tax Code of Ukraine on the specifics of taxation during the period of martial law" (No. 11416-d) for UAH 122.4 billion has been taken into account. In particular, an increase in the military tax rate from 1.5% to 5% will provide UAH 107.7 billion; the establishment of a military tax for taxpayers on a simplified taxation system, namely, for individuals-entrepreneurs of groups I, II, III, and IV - UAH 13.7 billion, legal entities of group III - UAH 929 million.

There is a reduction in spending on social protection. Thus, UAH 420 billion has been allocated to support socially vulnerable citizens (UAH 50 billion in 2024, UAH 470 billion), of which UAH 280 billion will be directed to subsidize the Pension Fund. And UAH 80.8 billion will be directed to the social protection of citizens.

The number of recipients of subsidies and benefits will decrease by 400 thousand (by 12.5%). The total amount from the budget will be 15.2% less (a reduction from 49.9 billion hryvnia to 42.3 billion hryvnia). It is planned to spend 42.32 billion UAH on paying housing subsidies in 2025. They will be received by 2.8 million families.

They plan to reduce spending on financing veteran policy measures in 2025: from UAH 13 billion in 2024 to almost UAH 6 billion.

For medical expenses is 214 billion UAH (in the plan for 2024 there were 207 billion UAH).

For education - 167 billion UAH (in the plan for 2024 there were 174 billion UAH)

For the development of culture and information space - UAH 9.6 billion. (in 2024 it was UAH 10.2 billion).

For the functioning of the Telemarathon - UAH 1.6 billion (in 2024 it was UAH 1.5 billion).

To support scientific research in the field of the military-industrial complex, energy, and energy efficiency - UAH 14.0 billion.

The Road Fund is provided - 43.2 billion UAH. More than half of this amount - 24.35 billion UAH. The government will spend on servicing the debts of the former "Ukravtodor" (Recovery Agency).

Fewer funds have been allocated for business support. Several support programs within the Ministry of Economy's expenditures have disappeared from the 2025 plan: the program for compensating the cost of agricultural machinery (UAH 1 billion was to be spent in 2024), the program for state stimulation of the creation of industrial parks (UAH 1 billion), and the National Cashback program (UAH 3 billion).

Business support includes funding from the Entrepreneurship Development Fund - UAH 18 billion (as of 2024) for the provision of preferential loans under the 5-7-9% program, as well as UAH 1.4 billion for grants for businesses.

To support the regions, UAH 12.2 billion has been allocated in the form of a subvention to compensate for the difference in tariffs, which will allow local budgets to ensure the availability of utilities for the population.

Providing citizens with housing through the Ukrfinzhitlo program - UAH 9.4 billion.

For prompt response to unforeseen events, UAH 43.9 billion has been allocated.

Humanitarian demining of lands - 1 billion UAH.

The 2025 budget also includes a new model for managing public investment projects - UAH 25 billion.

The draft budget proposed by the government will still pass the "sieve" of the Verkhovna Rada, where it is expected to undergo significant changes. In particular, the IMF may make its adjustments.

 

Ruslan Bortnik, Oksana Krasovskaya, Andrey Timchenko

for the Ukrainian Institute of Politics