Ukraine’s Economy: Western Support Declines, Risks Grow

According to an analysis published by The Washington Post, Ukraine could face serious economic difficulties in 2025 due to a likely decline in Western financial assistance. Today, a significant part of the Ukrainian budget, especially its civilian sector, is provided by external support, including income from frozen Russian assets, the profitability of which is used to cover non-military expenses.

Current situation in the Ukrainian economy

The Ukrainian economy in 2024 showed signs of partial recovery after a significant decline in 2022-2023. According to IMF estimates, Ukraine’s GDP grew by 4.5% in 2024, which is mainly explained by the adaptation of businesses to military conditions, an increase in domestic consumption, and agricultural exports. However, the country remains deeply dependent on international assistance. The total volume of external aid received by Ukraine in 2024 amounted to about $42 billion, of which about $18 billion was allocated for military needs, and the rest was allocated to budget financing, pension payments, support for healthcare and the education system.

Experts emphasize that international coordination and efficiency in providing aid will be a critical factor in the next 12 months. Without this, the Ukrainian economy risks facing a relapse of the crisis and increased social tension.

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Expected deficit in 2025
According to Ukrainian officials, about $40 billion in international aid will be needed next year to maintain basic government functions. However, according to preliminary data, donor countries, including the US and the EU, are currently ready to provide only half of this amount, that is, about $20 billion. This could lead to a deficit of $20 billion, which creates a threat of budget cuts and social instability.

Ukrainian Finance Minister Serhiy Marchenko warned the parliament to prepare for a possible extension of the war until at least the end of 2026, which will require a budget revision towards tightening and a search for internal reserves.

Geopolitical context of the conflict and investment climate in Ukraine

The intentions of some American politicians, including candidate Donald Trump, to focus on domestic and other foreign policy issues have created uncertainty among investors. At the beginning of 2025, there was a short-term surge in interest in Ukrainian sovereign bonds: their value reached a local maximum in February, but then began to decline after the intensification of hostilities and the lack of political clarity in Washington.

In addition, the signed agreement between Ukraine and the United States on the development of strategic minerals, including lithium and titanium, has not yet yielded tangible dividends: the project is not expected to be implemented before 2026-2027.

Analytics and trends

Main risks:

• Underfunding of the budget may lead to delays in social payments and a decrease in living standards.
• The investment climate remains unstable due to the ongoing war and the uncertain position of the United States.
• Possible changes in Washington’s policy course after the 2024 elections could increase pressure on the Ukrainian authorities in matters of domestic policy and resource management.

Potential positive factors:

• The EU is considering a mechanism for systemic support for Ukraine for the next four years through an expansion of the budget of the European Peace Fund.
• The IMF program for $15.6 billion until 2027 remains in force, subject to the implementation of macroeconomic reforms.
• The private sector demonstrates growth in certain areas, such as agricultural exports and IT services, despite the difficult conditions.

The economic scenario for Ukraine in 2025 remains uncertain. If the current level of hostilities and limited financing are maintained, the country may face the need to cut 10-15% of budget expenditures, including population support programs. At the same time, with an improvement in the political situation in the West and stabilization of the front line, a moderate economic recovery is possible as early as 2026.

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Frozen Russian assets are already becoming an important financial resource for Ukraine, providing funds for military support, economic recovery and stabilization, despite complex legal procedures and political risks.

Frozen Russian assets

These funds play a key role in supporting the Ukrainian economy in the context of the ongoing war. Since the start of the conflict, Western countries, including the EU, the US, Canada, Japan and the UK, have frozen assets of the Russian Central Bank and individuals worth about $300 billion, most of which are located in Europe and the US.

The EU has already transferred €6 billion to Ukraine in income from the reinvestment of these frozen assets in 2025 and plans to send another €12 billion in the future. In addition, the G7 countries have agreed on a mechanism to provide Ukraine with $50 billion in loans, which will be repaid with income from Russian assets. The UK will allocate $3 billion for the purchase of defense products and repair of equipment for the Ukrainian armed forces in 2025-2026.

Legal and political difficulties are currently preventing the complete confiscation of Russian assets, especially the sovereign reserves of the Central Bank of the Russian Federation, which remain inviolable. However, options are being discussed for gradually unfreezing the assets in exchange for specific concessions to Russia or the creation of an international compensation fund for the restoration of Ukraine.