On Thursday, Ukraine’s government committed to spending almost another €30 billion on the country’s defence requirements this year, bringing total defence expenditure to more than €80bn for 2026 – its highest annual spend since the start of Russia’s full-scale invasion.
About a third of this year’s defence budget will be spent on the wages of military personnel and yesterday Ukrainian President Volodymyr Zelensky announced wage increases for those in uniform.
Pay rises are to be incentivised – the more combat missions a soldier takes part in – the higher the pay.
A greater share of Ukraine’s defence expenditure, about €45bn, will be spent on military equipment.
With such enormous costs, the gradual disbursement of a new €90bn EU loan will be warmly welcomed by Ukrainian officials.
For the first three years of the war, Mr Zelensky and senior Ukrainian officials repeatedly asked the United States – both the Biden and Trump administrations – for long-range missiles, capable of striking targets inside Russia.
Those calls faded away this year as Ukraine developed greater deep strike drone capabilities of its own, and has been striking oil refineries deep inside Russia on a regular basis.
But the escalating drone war is costly. It is for Russia too.
A single model of a FP-1, a Ukrainian long-range drone, costs almost €50,000 to manufacture.
This is as cheap as deep strike technology gets.
At the higher end of the scale, the Liutyi, a more expensive Ukrainian long-range drone, costs about €170,000 to produce.
Ukraine aims to produce about seven million drones this year.
Most are smaller, cheaper FPVs used along the frontline and cost as little as a few hundred euro to manufacture.
Not surprisingly, Ukraine’s military budget in 2026 was larger than its civilian budget by about €13bn – that was before the top up funding for defence expenditure was announced this week.
With the EU’s Support Loan of €90bn now in place, Ukraine should be able to avoid the kind of dire financial situation it faced last September when the ministry of finance’s draft budget revealed an €18bn black hole.
Or, at least, Kyiv can delay the prospect of bankruptcy until the end of 2027 when the next funding crisis may well arise.
Two-thirds of the incoming EU loan will go towards Ukraine’s defence budget.
The remaining one-third, or €30bn, will prop up the country’s civilian budget for 2026 and 2027, enabling Kyiv to maintain public services and pension payments.
The EU’s existing €50bn Ukraine Facility, set up in 2024, has already helped to keep the state running.
“If we were talking about Ukraine without any sort of EU funding, there would not be a Ukraine,” Alex Fynn, an editor at research unit Kyiv Independent Insights, told RTÉ News.
“Looking at the civilian side of the ledger, so we’re not even talking about military aid, which is keeping Ukraine in the fight, quite literally, about half of the budget for the civilian side comes directly from the EU at this point,” he said.
Compared to the use of EU funds for Ukraine’s civilian budget, which is strictly tied to Ukraine meeting its EU reform requirements, Kyiv has more of a free hand when it comes to the way it spends the funds on defence and security.
Speed and scaling up production are the two priorities for Ukrainian defence firms and the EU wants to support those goals, not hamper them.
The bloc knows that it cannot let Ukraine collapse, both from moral and security standpoints so it is highly unlikely that the EU would ever cut off funding for Ukraine’s defence budget, especially given that the United States has effectively withdrawn its financial aid.
The EU’s only requirement for the use of the new defence funding is that Ukraine must open a bank account at the Bundesbank, Germany’s central bank.
This is because the European Central Bank does not have bank accounts and the EU needs some way of monitoring Kyiv’s expenditure.
But the provision of funding to cover Ukraine’s civilian budget may not always be a sure bet.
The Rada, Ukraine’s parliament, needs to continue introducing rule-of-law and anti-corruption reforms to meet EU standards, and the legislative body is not always the fastest to do so.
Factional groups within the Rada have their own domestic priorities and many MPs elected back in 2019 never expected to be long-serving wartime politicians.
“The Rada itself is in both a long-term sort of chronic crisis caused by the structural issues of not being able to replace deputies in the full-scale invasion and the second issue is a larger wave of political crises, which have engulfed the country in the last year,” said Mr Fynn, referring to a series of corruption investigations involving high-ranking officials.
Still, €2.8bn in EU funding, the first sum from from the €90bn loan, was released by the EU earlier this week to Ukraine.
Marta Kos, the EU’s commissioner for enlargement, said Ukraine had “merited” the payment on account of the “speed and commitment to delivering meaningful reforms”.
