(Bloomberg) -- Ukraine’s military supplies for next year are at risk because some allies are struggling to secure funding and others balk at increasing financing to help Kyiv, according to people familiar with the matter.
Ukraine is struggling to convince Western allies to make good on their promises as it confronts its third full winter since Russia’s 2022 invasion, the people said, asking not to be named discussing private conversations. Moscow’s war machine, in contrast, is outpacing Kyiv’s ability to acquire badly needed ammunition, missiles and other hardware to fend off attacks.
The dynamic shows that Russia’s economy is on a war footing, while Ukraine’s allies are not, according to one of the people, who like the others spoke on condition of anonymity.
Much of Ukraine’s military support for 2025 is linked to a Group of Seven deal to provide $50 billion in loans from profits generated by frozen Russian central bank assets.
Allies are still haggling over the final details of that deal and the US is seeking assurances that Hungary won’t block European Union measures. The final figure could fall short if an arrangement isn’t found.
But even if an agreement is reached, $50 billion is still not enough to support Ukraine’s needs through another year of war — and allies will need to look beyond that funding framework, according to the people.
President Volodymyr Zelenskiy is in the US this week presenting a “victory plan” to President Joe Biden. The package hinges on security guarantees such as an invitation to join NATO, which the Ukrainian leader believes are needed to pile pressure on Russia’s Vladimir Putin to halt the war.
But the aid push was overshadowed by friction with Republican nominee Donald Trump, who lashed out at Zelenskiy but later agreed to meet him. Trump has suggested Ukraine should make a deal with Moscow, whose forces are making grinding gains in the eastern Donetsk region and have decimated Ukraine’s energy system.
Those challenges are compounded by a shortfall in funding. The Ukrainian government forecasts a budget gap at 19% of gross domestic product in 2025, leaving some $35 billion needed to fill the hole, Prime Minister Denys Shmyhal said last month.
More than half of that will come from International Monetary Fund and EU aid, leaving about $15 billion required to shore up the balance — a gap that may require some of the G-7 loans to fill, officials have said.
Beyond that is military funding. The $50 billion that the G-7 is lining up would be roughly equivalent to the military assistance that the US and key European allies provided between January 2023 and June this year. The US supplied about €31.5 billion in that time frame while Germany, the UK, France and Italy contributed some €15.7 billion between them, according to data compiled by the Kiel Institute.
Those figures may not include all military support shipped to Ukraine, with some nations not disclosing all help provided. In other cases, pledges have yet to be fulfilled. Among other capabilities, Ukraine’s military relies on allied assistance for artillery ammunition, missiles and more air-defense capabilities.
The looming cash crunch among allies comes at a dangerous moment for Ukraine and could force Kyiv into negotiations from a position of weakness, the people said.
Next year will be especially crucial, because Russia’s economy may begin to face mounting pressure in 2026, a dynamic that would potentially erode Putin’s belief that time is on his side, according to the assessment of one European government.
Still, that presupposes that the outcome of November’s US election — in which Trump is locked in a tight race with Vice President Kamala Harris — doesn’t alter the dynamics of the conflict before then.
Moscow, whose production is abetted by shipments from Iran and North Korea, continues to funnel budget funding into the war effort. Russia plans to spend 13.2 trillion rubles ($142 billion) on defense in 2025, putting it at 6.2% of gross domestic product. Spending on defense and security is expected to consume around 40% of Russia’s total budget disbursement in 2025.
Ukraine’s European allies are facing their own constraints on the fiscal front. Chancellor Olaf Scholz’s government is hamstrung by constitutional debt restrictions — and has whittled direct funding for Kyiv. France has a new government after a tumultuous election season and is under pressure from the EU to narrow its deficit. In Italy, Prime Minister Giorgia Meloni’s fractious coalition may be tied down on spending pledges.
Tangible negotiations in Brussels on a new EU budget – along with any talk of joint borrowing to ramp up defense spending with hundreds of billions of euros – will likely have to wait until after the German election, the people said.
Assistance from the UK, a stalwart ally that’s often been first to provide advanced weapons, has also appeared to tail off lately, according to an official familiar with the matter. Prime Minister Keir Starmer has told his voters they face tough times ahead as he seeks to curb spending, although he also told the United Nations Wednesday that Britain’s support for Ukraine is “ironclad.”
To be sure, pledges from NATO allies continue to register. Biden announced nearly $8 billion in new military assistance for Ukraine on Thursday and plans to convene a leader-level meeting of key allies to coordinate additional support when he visits Germany next month.
The announcement, coinciding with Zelenskiy’s White House visit, said Biden was directing the Pentagon to allocate the full remainder of Ukraine assistance before the end of his term. The Defense Department is also unveiling an initial package that included additional air defense systems, drones, and munitions.
--With assistance from Zoe Schneeweiss, Craig Stirling, Alex Wickham, Volodymyr Verbianyi, Reinie Booysen and Ben Sills.
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