Ukraine's reserve fund for urgent reconstruction and fortifications nearly empty

Only half a billion hryvnias remain in the Reserve Fund of the Ukrainian state budget, which was allocated UAH 56 billion (US$1.37 billion) for 2024 to cover urgent reconstruction and fortification needs.

Source: Roksolana Pidlasa, a member of the Ukrainian Parliament and Head of the Budget Committee of the Verkhovna Rada of Ukraine, in an Economy Chronicles podcast by Ekonomichna Pravda

As part of the budget increase by half a trillion hryvnias, with UAH 495 billion (US$12.1 billion) allocated to the military, the government also proposes to allocate UAH 4.5 billion (US$109.8 million) to replenish the Reserve Fund of the state budget. This fund covers urgent expenditures for reconstruction and restoration, as well as defence needs and fortification construction.

Quote: "During the budget approval, about UAH 42 billion (US$1.02 billion) was allocated to the Reserve Fund. Over the course of this year, the Cabinet of Ministers (the government) increased its size to UAH 56 billion. However, only UAH 592 million remains from this amount," said Pidlasa.

Background:

• By the end of the year, the budget is short by half a trillion hryvnias for financing the defence sector. As a result, the Finance Ministry has developed a draft budget amendment for the corresponding amount.
• The budget is planned to be filled through four main sources: UAH 125 billion (US$3.05 billion) from increasing and introducing new taxes, UAH 126 billion (US$3.07 billion) from savings on servicing and repaying state debt, UAH 160 billion (US$3.90 billion) from the issuance of government domestic bonds, and UAH 89 billion (US$2.17 billion) from exceeding existing tax and fee collections.
• It is proposed to increase the military levy rate from 1.5% to 5% for individuals, introduce a military levy for legal entities at 1% of income, introduce a military levy for individual entrepreneurs of the first, second, and fourth groups at UAH 800 (US$19.51) per month, and introduce a military levy for individual entrepreneurs of the third group at 1% of income.
• This approach has faced criticism. Thirteen analytical centres suggested that the government should increase VAT instead of the military levy. The initial government proposal included raising the VAT rate from 20% to 22-23% and the military levy from 1.5% to 5%. Additionally, it was expected that the military levy would also apply to individual entrepreneurs.
• The Finance Ministry believes that they are proposing the most moderate option for financing additional military needs among all possibilities. The budget and tax legislation was expected to be passed in both readings in July, but on 23 July, the Ukrainian parliament announced a break in its work until August.

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