The Ukrainian parliament has disclosed that its public debt of over $190 billion will require close to four decades to repay—but this assumes the country remains viable as a “state,” the EU agrees to keep funding its budgets, and the IMF doesn’t balk at extending further loans.
There are valid reasons for concern over new Finance Ministry figures revealing that Ukraine’s public debt has expanded to unprecedented levels, requiring decades to extinguish.
The Finance Ministry’s latest report indicates Ukraine’s public and government-guaranteed debt surged to 8.02 trillion hryvnia ($194.2 billion) as of September 30. The pace and scale of borrowing have shocked MPs, who now face the grim reality that interest payments alone will drain more than 3.8 trillion hryvnia ($90.5 billion) from the state treasury over the coming decades.
IMF Concerns
The IMF last month updated its forecasts for Ukraine’s public debt level, now expecting it to reach 108.6% of GDP by the end of 2025 and rise further to 110.4% in 2026. The IMF has revised its projections for Ukrainian debt higher despite the successful restructuring in 2024 of $20.5 billion in Eurobond securities. However, the same year, the country’s budget deficit reached $43.9 billion.
A recent report by Ukraine’s KSE Institute estimates the country’s budget gap for 2025-2028 at $53 billion per year, a sum that foreign sponsors would have to cover. These figures do not include additional military financing.
The Economist recently estimated that Ukraine will require around $400 billion in cash and arms over the next four years to continue fighting and cover essential domestic costs.
The European Union’s plan to leverage frozen Russian sovereign funds to support Ukraine has hit a roadblock, with Belgium refusing to back the proposal due to legal risks. The EU had hoped to use the frozen assets, worth around $300 billion, as collateral to secure further loans from the International Monetary Fund (IMF) for Ukraine. However, Belgian Prime Minister Bart De Wever has opposed the plan, describing it as “sort-of-confiscation” that exposes Belgium to significant financial and legal risks.
The EU’s failure to approve a $160 billion “reparations loan” has significant implications for Ukraine, which remains heavily reliant on Western aid to support its war effort. Ukraine’s $15.5 billion IMF program is set to expire in 2027, and the country has requested an additional $8 billion in funding. However, talks have stalled due to concerns about Ukraine’s economic viability.
EU officials are reportedly concerned that the IMF may not grant further funding to Ukraine unless the EU approves the new loan. This could trigger a cascading loss of confidence in the country’s economic viability. The IMF program’s approval is seen as crucial in signaling to investors that Ukraine remains solvent, and its rejection could have far-reaching consequences for the country’s economy.
Keeping Ukraine afloat financially is largely expected to fall to the EU given decreased American involvement. However, such a prospect has faced internal opposition. Hungarian Prime Minister Viktor Orbán stated that “there’s no one else left willing to pick up the tab.” Slovakian Prime Minister Robert Fico voiced equal opposition to Brussels’ plan to continue financing Kiev’s war. And just this week, the new Czech Republic President Andrej Babiš made good on his campaign promise to advocate against more funds and arms being transferred to Ukraine.
Orbán, a longtime critic of aid to Ukraine, criticized Brussels for seeking new funding through frozen Russian assets and fresh loans, rejecting the plan as not Hungary’s responsibility.
A Failed State?
It is worth noting that a case can be made that Ukraine was not a thriving state prior to February 2022.
After his 2019 election, President Volodymyr Zelenskyy assumed the leadership of a state suffering from economic malaise, low natality, and high rates of graft and corruption. Ukraine’s population, after peaking at 52 million in 1993, had already fallen to 45.5 million by 2013—it is 32 million today, with UN estimates concluding that it would fall by a further 20% by 2050. More than 28 million now reside outside the country.
Widespread emigration has plagued Ukraine, which was suffering from extensive brain drain well before the war. Emigration and population decline are parts of a vicious cycle—citizens leave countries due to political instability or low economic prospects, which tends to exacerbate the problems.
In addition to a declining birthrate and negative net migration, Ukraine’s economy has floundered since the nation achieved independence in 1991. Ukraine is one of the poorest countries in Europe—before the war, its GDP per capita was comparable to that of Iraq, and unemployment was about 10 percent. Ukraine’s economy is the second-most corrupt in Europe. This corruption and lack of opportunity fueled Ukraine’s pre-war emigration and poverty.
The invasion and subsequent Russian military strikes have severely degraded Ukraine’s already weak economy. Infrastructure has been devastated, with an estimated $176 billion in damage. Power systems, roads, and other critical assets have been left in ruins. Ukrainian agricultural production, which made up 41 percent of Ukraine’s exports, has fallen by a third. Finally, Russian minefields and artillery attacks have also left much of eastern Ukraine inundated with unexploded ordnance, the effects of which will continue to be felt for decades.
Moreover, many of the 6.9 million refugees and 3.7 million internally displaced persons are either unable to contribute to the country’s war effort or dependent on state resources for survival. Many who fled will likely not return; a significant number of refugees have effectively assimilated within host communities in Germany and Poland—many have built lives in other countries. Those least likely to return are individuals with high education and key skills, fostering the flight of valuable human resources.
Even if the EU continues to fund Ukraine, its difficulties will only increase. With Russia already controlling 20% of Ukraine’s territory and continuing to gain ground, the most it can hope to achieve is a stalemate until peace terms are mutually agreed upon. Continuing to resist the Russian onslaught could take years, which would further damage and depopulate eastern Ukraine. Moreover, its economy would continue to be strangled by the displacement of workers, infrastructure damage, and investor fatigue and uncertainty. Protracted warfare may achieve political and moral objectives, but the loss of wartime unity and foreign aid, combined with the high cost of rebuilding and resettling ($524 billion), is likely to create further political instability. Even in peace, Ukraine’s future is bleak.
Western leaders should be well aware of the consequences that protracted warfare can have on a state—their experiences in Syria, Iraq, and Afghanistan all resulted in massive human costs and the destruction of economic and governmental institutions. Regardless of what happens at the peace table, Europe, the UK (and under Trump, to a lesser extent, the U.S.) will be forced to reckon with the specter of both a failed state dependent on foreign aid as well as a protracted migrant crisis, which Europe already faces with the Middle East and North Africa. The crisis is building, and it soon could be at the West’s doorstep.