Ukraine's Fiscal Equation Hinges on Post-2027 EU Funding

Ukraine faces sharp fiscal trade-offs even with large-scale external support, according to a Peterson Institute for International Economics discussion featuring senior fellow Nicolas Véron and former finance minister Natalie Jaresko. The current mix of foreign grants and concessional loans, combined with domestic revenue, has kept the economy running through more than two years of war. The equation after 2027 is unsettled.

European Union funding arrangements expire that year. How much additional support the EU and other donors will commit beyond that point remains an open question. The IMF approved a $15.6 billion extended fund facility in 2023. Véron said IMF conditionality has anchored policy discipline. He noted that the program's design must adapt as the war evolves.

Domestic revenue is the second variable. Tax receipts have held up better than many expected, helped by a shift to a wartime tax regime and a still-functioning banking sector. Jaresko said the banking system has remained stable since the initial shock of 2022, with deposits returning and lending gradually restarting. State-owned banks that dominate the sector still need capital buffers. Raising tax revenue further without crushing private activity is difficult when a large share of the economy is either destroyed or operating under occupation.

Monetary stability has been maintained through capital controls and a managed hryvnia. A deep domestic bond market absorbs excess liquidity. The central bank has rebuilt reserves to roughly $40 billion, a level that provides a cushion against renewed pressure. Inflation has moderated. It remains above target. Getting it lower would require even tighter policy, which would slow an already fragile recovery of private demand.