Ukraine's Parliament approves 2026 budget, focuses on defence

By Olena Harmash

KYIV, Dec 3 (Reuters) - Ukraine's Parliament approved the 2026 budget on Wednesday, planning to allocate nearly a third of the country's gross domestic product to defence as the war with Russia rages on.

Ukraine has been rocked by a political crisis following an investigation into corruption in the energy sector. The budget vote was seen by political analysts as a litmus test for Parliament to be able to maintain unity and pass key decisions during a critical stage of the war.

"This is an important signal of Ukraine's resilience and securing a stable financial provision for the next year's needs," President Volodymyr Zelenskiy said.

"The priorities are clear: ensuring our defence, social programmes, and the ability to rebuild our lives after Russia's attacks."

The budget was approved by 257 lawmakers despite criticism from opposition deputies who demanded higher wages for soldiers and an increase in other social spending. Lawmakers shouted "Shame" as the vote proceeded.

Finance Minister Serhii Marchenko said that about 27.2% of GDP would be channelled to the army and weapons production and purchases.

With diplomatic efforts to end the war yielding no tangible results for now, Ukraine is focusing on increasing its domestic weapons production to maintain defence lines against a bigger and better-equipped enemy.

CHALLENGE TO ENSURE FOREIGN FINANCING

The budget deficit for the next year is set at 18.5% of GDP, Marchenko said, adding that the key challenge for Kyiv would be to ensure external financing to cover the gap.

Marchenko said the country would need over $45 billion in external financing in 2026.

Ukraine hopes to secure a reparations loan from its European partners that would use frozen Russian assets.

The budget's approval was also a key step for Ukraine to secure a new lending programme with the International Monetary Fund.

The government is planning for higher budget revenues and spending next year.

Revenues are planned at about 2.92 trillion hryvnias ($68.9 billion) in 2026, an increase of nearly 415 billion hryvnias compared with this year.

Spending is targeted at around 4.84 trillion hryvnias, an increase of 134.5 billion hryvnias from this year.

Nearly 60% of all spending is to be allocated to defence, including soldiers' salaries and weapons purchases, officials said.

(Reporting by Olena Harmash; Additional reporting by Yuliia Dysa, Editing by Ed Osmond)