Ukraine scrambles for money to fight war as Russian strikes batter economy

Kryvyi Rih, the hometown of Ukrainian President Volodymyr Zelenskiy, is struggling to survive as Russian airstrikes have brought its huge steel plant and mines to a standstill, pushing the local economy to the brink.

Mayor Oleksandr Vilkul said the sprawling industrial city of about 600,000 people was doing everything possible to keep hospitals open, schools and kindergartens running and public transport operating.

“In Kryvyi Rih, the situation is actually worse than anywhere else, apart from the front line itself,” Vilkul, a former mining executive, said in a video address.

The crisis highlights the financial pressure facing Ukraine as the government confronts its biggest budget shortfall since Russia’s full-scale invasion in 2022.

Last month, the city’s largest employer, ArcelorMittal’s mining and steelmaking complex, suspended operations after a series of Russian ballistic missile strikes disrupted its furnaces.

“It’s about survival. Right now, we need to survive,” Vilkul said.

The crisis is being felt across Ukraine’s once-mighty steel industry, which accounted for about a tenth of economic output before the war. Mills in Zaporizhzhia and other industrial centres have fallen silent, while exports have slumped.

An escalation in Russian drone and missile strikes this summer destroyed factories and warehouses, damaged ports and railways and forced businesses to close, weakening economic growth and tax revenues.

At the same time, the cost of fighting the technology-driven war is rising. Billions of euros in foreign loans have been delayed because Ukraine has yet to pass legislation, including tax reforms and anti-corruption measures demanded by its Western allies.

Ukraine needs $56 billion to cover its budget gap this year, equivalent to about a quarter of its economic output. Of that, $27 billion is earmarked for military spending.

Ukrainian officials met European partners in Brussels last week to discuss bringing forward disbursements under a €90-billion ($101-billion) EU loan. The European Commission and Ukraine said they had identified funds to close this year’s gap.

But accelerating those payments could increase pressure on next year’s budget, three sources familiar with the talks said, particularly as election campaigns in European countries including France and Poland could affect support for Kyiv.

Prime Minister Sergii Koretskyi has acknowledged that the situation is “challenging”. The government has frozen non-essential spending, including reconstruction of damaged buildings and infrastructure, to prioritise military spending, public sector wages and pensions.

“All resources should be channelled into critically important areas,” Koretskyi told reporters.

War costs rise as revenues fall

Ukraine’s daily cost of fighting has risen sharply. Two years ago, a single day of fighting cost about $140 million; that figure has now reached $190 million, according to Roksolana Pidlasa, head of parliament’s budget committee.

The increase is partly driven by the need for expensive medium- and long-range weapons capable of striking Russian oil refineries and military factories. The government is also facing higher wages for an expanded army and rising costs to support families of disabled and fallen soldiers.

“Expenditure will continue to rise,” Pidlasa told a conference in Kyiv.

Ukraine spent more than $44 billion on defence in the first nine months of this year, excluding military support provided by its allies. During the same period, the government collected about $42 billion in tax revenue as the economy slowed.

Pidlasa said Russian attacks had caused more than 49.5 billion hryvnias ($1.1 billion) in lost tax revenue in the first nine months by damaging property and goods, disrupting logistics and forcing businesses to close temporarily. The losses could reach 70 billion hryvnias by the end of the year, the government estimates.

“We have not a temporary but a structural problem with the revenues at the very time when spending really requires resources,” said Oleksandra Myronenko, an economist at the Centre for Economic Strategies.

Businesses are also scaling back. Vasyl Khmelnytskyi, founder of an industrial park near Kyiv, said he had scrapped plans to build three factories because of the risks.

Ukraine’s agricultural sector, its biggest source of export revenue, has also been hit hard. Grain exports fell 36.6% year-on-year in September after Russian attacks on Black Sea ports.

About $40 billion in export revenue is at risk this year because of the blockade, Economy Minister Oleksandr Kravchenko said.

Despite tens of billions of euros in foreign support, Ukraine’s economy is expected to grow by only 0.5% to 1.5% this year, down from 1.8% in 2025.

Foreign aid at risk

Ukraine has maintained macroeconomic and financial stability during more than four years of war largely through fiscal support from Western partners, receiving nearly $200 billion since Russia’s invasion.

But $29.5 billion in foreign aid is now at risk because of delays in passing reforms, Koretskyi said. The government has postponed about $900 million in capital spending until December in the hope that the required legislation will be approved.

The government aims to pass all the necessary legislation by October 15.

“Only then we will get all the money,” Koretskyi said. “This is absolutely vital. It needs to be done as soon as possible.”

Lawmakers are also discussing next year’s budget, which proposes a record $110 billion in defence spending, excluding direct military aid.

Finance Minister Sergii Marchenko has estimated that the unfunded budget gap for next year is already more than $32 billion.

One possible source of funding is frozen Russian assets in Europe. EU countries have immobilised about €210 billion of Russian central bank assets since Moscow’s invasion.

“Ukraine continues to mobilise domestic resources, but the scale of Russia’s war puts clear limits on our capacity,” Marchenko said on X.