Ukrainian finance minister urges G7 to help fund Ukrainian army to reduce Ukraine's budget deficit

MOSCOW. May 23 (Interfax) - The necessity to maintain Ukraine's military spending at a high level due to the crisis forms a considerable budget deficit in the country, Ukrainian Finance Minister Sergei Marchenko said at a May 20-22 meeting of the G7 finance ministers and central bank governors, along with the leadership of the International Monetary Fund, the World Bank and the European Commission in Banff, Canada.

Ukrainian media said, citing the Finance Ministry's press service, that Marchenko called for a systemic and long-term solution, which could be partners' partial financing for the Ukrainian Armed Forces as part of their integration into the European security system.

He said this coud "enable Ukraine to maintain its macro-financial stability".

Ukraine's state budget deficit stood at 3.8% of GDP in 2021, Marchenko said. After the start of the crisis, the economy first contracted by nearly 30% and the deficit reached 20% of GDP as a result of a steep increase in military spending from 5% to 30% of GDP.

In the absence of military spending and crisis-related factors, the budget deficit would have gradually declined from 6.8% of GDP in 2022 to 4.2% in 2023, 0.6% in 2024, and 0.2% in 2025, Marchenko said.

"The cost of maintaining Ukraine's Armed Forces to help ensure European stability represents a small share of the EU's GDP. It could be distributed among participating countries and be taken into account within the framework of NATO defense spending obligations," he said.

As reported, the IMF updated its Extended Fund Facility Arrangement for Ukraine during the seventh review, and now expects the budget deficit to decline from 19.6% of GDP in 2025 to 10.1% of GDP in 2026. However, a number of experts believe that in order to be able to almost halve the budget deficit, Ukraine will have to reduce its military spending by approximately the same amount.