Kyiv’s financial efforts to modernise its military over the seven years since 2014 has been significant. The share of the national budget allocated to military expenditure increased from 1.5 percent of GDP (Gross Domestic Product) in 2014 to more than 4.1 percent in 2020. This share of defence spending is more than most NATO countries and similar to Russia's military spending. The defense industry has grown substantially, with more than $6 billion getting spent on security and defense – roughly 5 percent of the nation’s economic output – because of Russia’s war. Much of the spending is shrouded in secrecy, making it a ripe target for corruption.
Expenditures of the state budget for the development and purchase of weapons and military equipment in 2022 increased by UAH 67.57 billion due to loans from the United Kingdom totaling GBP1.7 billion for the development of capabilities of the Navy of the Armed Forces of Ukraine. The relevant law (#7167) was passed by the Verkhovna Rada on 15 March 2022 by 342 votes. According to him, the total expenditures of the 2022 state budget increased from UAH 1 trillion 525.93 billion to UAH 1 trillion 593.5 billion due to the increase of the special fund to UAH 221.11 billion.
At the same time, the maximum amount of the state budget deficit was increased from UAH 188.8 billion. up to UAH 256.36 billion, in particular for the special fund - up to UAH 96.1 billion. In addition, the state budget removed the limit of 3% of its planned revenues from state guarantees, as well as UAH 10 billion and UAH 20 billion - respectively, for portfolio guarantees and loan guarantees to increase the country's defense capabilities.
The law also restricts the use of funds from the road fund. "First of all, they will be spent on state debt payments, defense, network development and road maintenance," the Servant of the People faction commented on the document.
According to the explanatory note to the law, Ukraine intends to implement state investment projects to purchase two minesweepers from British suppliers, their delivery and maintenance, joint construction of eight missile boats, delivery and installation of weapons systems on active ships. In addition, joint construction of the frigate is provided, as well as consulting and technical support for the construction of naval infrastructure, including the delivery of equipment.
As reported, at the end of January 2022, the Verkhovna Rada ratified the Framework Intergovernmental Agreement on credit support for the development of the capabilities of the Armed Forces of the Ukrainian Armed Forces. It was signed in London on November 12, 2021 and provides funds for the construction of eight missile boats, the purchase of two minesweepers from the United Kingdom and the establishment of two naval bases in Ukraine.
The Verkhovna Rada of Ukraine on 15 February 2022 approved a three-year plan for closed defense procurement (TPP) for 2022-24, which is the successor to the State Defense Order (DPO). This was reported by the Independent Anti-Corruption Commission. The three-year plan concerns the procurement of goods, works and services for defense purposes, which are carried out under a closed procedure. It will provide an opportunity to plan the development of weapons systems and more efficient use of public funds spent on Ukraine's defense capabilities.
President Volodymyr Zelensky stated 01 December 2021 that the funding for the security and defense sector will exceed UAH 320 billion in 2022. The President said this in his annual address to the Verkhovna Rada on the internal and external situation of Ukraine. "In 2022, for the first time in 30 years, funding for all programs in the defense and security sector will exceed UAH 320 billion," he said. According to the President, these funds will be used for launching a missile program, restoring the Ukrainian fleet, creating cyber troops, building AN-178 aircraft for the army, beginning construction of a military plant for the production of modern drones etc. Zelensky noted that the security and defense sector funding amounted to UAH 191.7 billion in 2018.
Nashi Groshi (“Our Money”) (Ukraine) is a web-based organization that analyzes corrupt practices in public procurement and finance data. Nashi Groshi reported in February 2019 about a corruption scheme in the defense sector run by people close to Poroshenko and covered up by top law enforcement agencies, namely the Security Service of Ukraine, known as the SBU; Prosecutor General’s Office; Military Prosecutor’s Office; State Fiscal Service; and even the National Anti-Corruption Bureau, a supposedly independent body praised by civil society and international organizations for making progress in corruption investigations.
In 2019 Ministry of Defense (MOD) financing is planned at UAH 102.5 billion (approx. $ 3.42 billion). About $ 566 million goes for procurement and modernization of weapons and military equipment. Ministry of Internal Affairs financing will reach $ 2.7 billion. Overall Ukrainian budget 2019 allocations for defense and security reached 5.38% of GDP. In recent years, given budget constraints, many Ukrainian armed forces acquisitions have been organized through military assistance programs with allies. Key suppliers of defense equipment to Ukraine have been the US and the UK.
About 20-25% of money allocated to the Ukrainian Defense Ministry is being stolen. Presidential advisor and assistant to the defense minister Yuriy Biriukov has said this on Channel 5, an Ukrinform correspondent reported 06 January 2015. "According to estimates, about 20-25% of money is stolen now," Biriukov said. He noted that the military prosecutor's office should be responsible for the restoration of law and order in the ministry. But there is also "total corruption" there, Biriukov added.
The Ukrainian parliament approved the country’s state budget on 29 December 2014, with an estimated shortfall amounting to some $4 billion. A total of 233 Ukrainian lawmakers voted in favor of the budget with the necessary amount of 226 votes to pass it. Prime Minister Arseny Yatsenyuk, presenting the draft, had already said it would require adjustments to be introduced by February 15, 2015. The envisaged share for defense would be 90 billion hryvnias (over $5.7 billion).
On 20 December 2014, President Petro Poroshenko reported that each day of Anti-Terrorist Operation (ATO) in eastern Ukraine costs Hr 100 million.
A draft law on the state budget of Ukraine for 2015 was withdrawn from the parliament for revision. The bill No.1000, registered on 12 December 2014, was withdrawn December 13. The initiators of the document are the Cabinet and Prime Minister Arseniy Yatseniuk. The increase in Ukraine’s military budget was apparently at the expense of social spending. The government announced plans to cut state spending by $1.73 billion, with over half of funds accounting for the social sector.
After consultations with the parliamentary factions of the coalition European Ukraine, the government decided to recall the draft law of Ukraine "On the state budget of Ukraine for 2015" for revision and submission of the agreed variant, taking into consideration the proposals of all coalition factions. On December 12, First Deputy Speaker Andriy Parubiy reported that the Cabinet promises to submit to the Verkhovna Rada the state budget 2015 by December 20.
Budget of the Defense Ministry of Ukraine for 2015 was UAH 50 billion. Defense Minister Stepan Poltorak told during an hour of questions to the government 12 December 2014. According to him, this year budget of the Defense Ministry made up UAH 26 billion, out of these, UAH 11 billion is the reserve fund. Setting up of new units and subunits, brigades and creation of special operations forces is envisaged, as well as four operative commands.
It was proposed to allocate UAH 401 million for the modernization of military equipment and weapons, and UAH 6.45 billion for their purchase (including UAH 5.716 billion for supplies from domestic defense companies and UAH 1.74 billion for the purchase of imported military equipment).
With 269 lawmakers voting in favor, Ukraine's parliament approved, on 11 December 2014, a government action plan for 2015-2020, allowing for five percent of the country's annual GDP to be funneled into national security and defense. The plan also called on Ukraine to formally end its non-bloc status and join NATO, and for its armed forces to switch to NATO military standards by 2020.
In the face of the Russian aggression, defence expenditure had oscillated around a figure of 1% of GDP, which not only made it impossible to carry out any reforms, but was insufficient even for the current activities of the Ukrainian armed forces. This has resulted in the systematic reduction of training, a deterioration in the condition of armaments and military equipment,as well as a drop in interest in a professional military career. It has becomecommon among the professional staff of the Ukrainian army to make up their salaries, which are low even by local standards, by illegally selling off armyproperty, as well as by embezzling funds granted for the maintenance of the units. Tolerating this state of affairs not only did not help in shaping the newmentality of the commanding staff of a sovereign state, but also maintained the negative habits acquired during the twilight of the Soviet Union.
Ukraine is planning to increase its military spending in 2015 up to 3 percent of the country's gross domestic product, President Petro Poroshenko's press service said 04 November 2014. The announcement cited the president's decree that enforced the September 12 decision of the Ukrainian Security Council. The plan aims at bolstering Ukraine's defenses. Poroshenko also said earlier the country's economy would be converted to meet its military objectives.
"With regard to financial support of the security and defense sector, the government has been tasked specifically with finalizing a draft state budget for Ukraine for the year 2015 that will prioritize the funding of defense programs. For instance, it stipulates that national security needs will be funded at a level of no less than 3 percent of the GDP," the statement said.
UAH 14 billion will be allocated from the Ukrainian Defense Ministry's budget of UAH 44.6 billion for the development of weapons for the army in 2015, and nearly UAH 2 billion will be spent on the training of Armed Forces personnel, Defense Minister Stepan Poltorak said 09 January 2015. "In 2015, the Defense Ministry is to get UAH 44.6 billion [from the state budget], including UAH 4.4 billion worth of state guarantees. The increase in spending compared with 2014 [when the defense budget was UAH 27.3 billion] is UAH 17.3 billion, or 1.6 times," he said at a press conference in Kyiv.
According to Poltorak, of this amount, UAH 28.7 billion will be used for the maintenance of the Ukrainian Armed Forces, UAH 14 billion for arms development, and UAH 1.9 billion for the training of army personnel.
The Ukrainian authorities’ decision to counter the Russian aggression inEastern Ukraine by military force entailed the first significant increase indefence spending after two decades of stagnation and decline. However, in-creasing the Defence Ministry’s budget, from 1% of GDP in 2013 to 2.5% ofGDP in 2015 and 2016, did not provide an impulse for any major investmentin the technical modernisation and development of the Ukrainian armed forces; it merely covered the necessary costs associated with the conduct ofmilitary operations in the Donbas.
The reform program Strategy 2020 provides that Ukraine should become "a military state," increasing its military expenditures from 1 percent of the GDP to 5 percent, Dmytro Shimkiv, deputy head of the Ukrainian presidential administration, said 29 September 2014. "We are operating under the assumption that Ukraine should become a military state," he said at a public debate on Strategy 2020 in Kiev. The reform program envisions an increase of military funding from 1 percent of the GDP in 2014 to 5 percent in 2020. The reforms also envision an increase in the number of servicemen in Ukraine from 2.8 people to 7 people per 1,000 people, he said. Shimkiv also said the defense and national security reform is a key reform envisioned by the program Strategy 2020.
Ukraine's parliament agreed to mobilize military and National Guard units and approved emergency funding om 17 March 2014 of Hr 6.7 billion (more than $600 million) for military spending -- a significant amount in a defense budget that doesn't exceed $2 billion a year. The law on partial mobilization of the military was approved with 275 out of 450 votes. The law amending the current budget was approved with the support of 243 out of 450 lawmakers. Andriy Parubiy, Batkivshchyna party member and head of Ukraine's Security and Defense Council, blamed overthrown President Viktor Yanukovych for doing "everything to destroy the Ukrainian army. We need to put all operating units on alert." Minister of Finance Oleksandr Shlapak said that "we have a very complicated economic situation in Ukraine" and will need to spend Hr 6.7 billion in the next three months to buy weapons, repair military equipment and conduct training camps. Currently, Shlapak said that there were no reserve funds available, forcing parliament to immediately reallocate part of the approved 2014 budget.
Ukraine's president announced plans to boost his country's defense spending by an estimated 50 percent, pledging to spend an extra 40 billion hryvnia ($3 billion) by 2017. Ukrainian President Petro Poroshenko vowed to increase military spending by $3 billion over the next few years because of the ongoing pro-Russian separatist threat in the east of Ukraine. Poroshenko made the comment Sunday in Kyiv during a speech 24 August 2014, marking Independence Day, 23 years after the breakup of the Soviet Union.
After independence, the kind of serious reorganization and downsizing of the Ukrainian military necessary to rationalize the forces was not accomplished, leaving a force larger than the country could afford. Every Ukrainian government since independence has budgeted less than was necessary to adequately fund the existing military – and then provided actual funding even less than the paltry amount budgeted.
This led to a military without enough money to adequately train its conscript troops There was neither enough money to properly maintain the navy’s ships, except for a couple of show pieces, nor money for those ships able to put to sea for sufficient time to adequately train crews. However, one of the most damaging deficits was in the air force, for which there was neither sufficient money to properly maintain aging Soviet-era aircraft nor enough money for the air force’s pilots to have more than a very small number of the flying hours necessary to maintain top efficiency.
In recent years the Ukrainian parliament has funded the military at 10 percent of what it needs to modernize. The Ukrainian military has said it needed 131 billion hryvnyas ($11.3 billion) to replace old weapons and machinery. But in 2013 the parliament allocated just 15.6 billion hryvnyas ($1.3 billion) for defense. By contrast, Poland's defense budget is about $10 billion, Russia's is some $70 billion, and the United States' is around $640 billion.
Ukraine’s 2012 military spending increased by around 30 percent, to about $2 billion or 1.1 percent of GDP, the Ukrainian Defense Ministry’s financial department said on 25 January 2012. Funding for the Defense Ministry in 2012 will be 17 bln UAH ($2.13 bln): 15 bln UAH ($1.9 bln) from the general budget fund 2 bln UAH ($250 mln) from the special fund which must be self-funded through MoD business activities. About 5 bln UAH ($625 mln) will be allocated for development and purchase of new and upgraded weapons.
For comparison, the 2011 defense budget is 13.6 bln UAH ($1.7 bln) of which 11.4 bln UAH ($1.43 bln) comes from general fund and 2.2 bln UAH ($275 mln) from the special fund. The 2012 draft budget thus represented a 31% increase in the general fund and a 25% increase in the overall defense budget. Growth in spending on procurement and modernization has increased at an even greater rate. This follows a 20% increase in 2011 over 2010, underlining the government’s commitment to increasing defense budgets and modernization.
The ministry expected to spend about $120 million of the 2012 budget for purchases and modernization of military equipment, as well as scientific and military design projects, including the production of L-39 Albatros jet trainers and MiG-29 fighter jets. Ukraine’s existing fleet of MiG-29, L-39 and Su-25 close air support aircrafts will also be modernized.
The Defense Ministry announced that it would spend 2.39 bln UAH ($299 mln) on equipment for the Armed Forces by the end of 2012. Of this, 666.8 mln UAH ($83.35 mln) will be allocated for procurement of new military equipment. Items going into service by the end of 2012 (for delivery in 2013) include modernized Su-27 fighter aircrafts, modernized Mi-24 attack helicopters, BTR-4E APCs, the “Malachite” radar station, a 152-millimeter precise guided projectile, and 30-millimeter ZTM-1 automatic canons (which are scheduled for installations on combat modules manufactured in Ukraine). By the end of 2012, the State will allocate an additional 800 mln UAH ($100 mln) for national programs to develop an An-70 transport aircrafts, the corvette-class frigate, the Sapsan multi-functional missile complex, and Armed Forces’ command and control system. In addition, 900 mln UAH ($112.5 mln) will be allocated for equipment repairs.
Head of Ukrainian Defense Ministry’s Financial Department Lt. Gen. Yvan Marko said 21 jets, five helicopters and 612 vehicles will be repaired and modernized in 2012. Ukraine’s 2012 state defense order would stand at $184 million, four times more than last year, including $54 million to build a corvette-class ship and $13 million for the construction of the Sapsan multifunctional missile system. Ukraine’s military budget amounted to 0.8 percent of GDP on average over the past few years, substantially less than the average 1.3 percent of other Eastern European states.
The Ukrainian Armed Forces are to be downsized almost 50 percent by 2017, General Staff chief Igor Nikolaenko said on 07 September 2012. Military personnel will be reduced from the current 193,000 to 100,000, Ukrainskiye Novosti news agency quoted him as saying. There will be no more personnel cuts after 2017. The country also plans to completely phase out the draft by that time.
Ukraine's total defense spending during 2001 was Hr 2.7 billion ($550 million), while the actual needs of the country's army are estimated at "at least" Hr 10 billion ($2 billion). Insufficient funding of defense needs requires finding extra sources of funding. It can be solved by economic activities within the Armed Forces. The State leadership considers it a temporary, but necessary activity for the Armed Forces under current conditions. As the result of this activity in 2000 it was planned to gain more than 900 million Hrn for defense needs.
The main goal of economic activity is to enhance funding support of forces and ensure social protection of military personnel and their families.The State Program defines its main near-term priorities as the following:
- Looking for additional sources of defense funding.
- Improving the current economic status of MOD enterprises and enhancing their production outputs.
- Improving the procedures of selling excess Armed Forces equipment, increasing the cash flow from leasing equipment, facilities and providing services.
The main challenge in implementing the State Programme of Development of the Armed Forces is resource limitations: imbalances in the amount of funding, stipulated in the Programme itself, according to the indices approved by the laws on the State Budget, to that actually received. Thus, the approval, by the Law of Ukraine, of expenditure for 2007 of UAH 9.13 billion rather than UAH 10.3 billion stipulated by the State Programme made it impossible to fully implement measures determined in the Programme. Total amount of funding that had not been allocated to the State Programme of Development of the Armed Forces of Ukraine in 2006-2007 is more than UAH 4 billion. If such a trend continues, the Armed Forces may fail to receive nearly UAH 10.5 billion or 14.2% of the UAH 73.4 billion stipulated by the Programme.
Being financially restrained MOD and GS focused their main efforts to maintaining the combat readiness of available weapons and equipment through their modernization and prolongation of service life. An organization and technology basis was created to modernize and prolong the service life of aircraft: An-24, An-26, An-30, MiG-29, Su-24, Su-25, Su-27, L-39, S-300; Buck M1 anti-aircraft missile systems; and, tanks and light armoured vehicles. The newly introduced system of state procurement through a Single Tender Committee prevents the spread of finances, provides for raising the level of transparency and control over the procurement process, while increasing the efficiency of budget spending.
The State Programme of the Armed Forces of Ukraine Development for 2006-2011 (The State Programme) was accomplished in 2011. The Armed Forces’ development in the framework of the State Programme was financed by the amount of UAH 55.5 billion (75.6% of the planned budget), that enabled its implementation in full.
The State Budget of Ukraine for 2011 assigned UAH 13,804.4 million for the Ministry of Defence, which accounted for 1.07% of GDP. The General Fund amounted to UAH 11,594.8 million (84% of the budget) while the Special Fund accounted for UAH 2,209.6 million (16% of the budget). Only UAH 12,709.1 million (0.98% of GDP) was actually allocated which accounted for 92% of the annual budget. The General Fund allocation totalled UAH 11,594.8 million (100% of budget) and the Special Fund UAH 1,114.3 million (50.4% of budget).
The average annual percentage of financing the needs of the defence sector during the period 2006-2011 was 1.0% of GDP; the majority of the funds (about 80%) were used for the maintenance of troops (forces). Under these circumstances the budget of the Ministry of Defence was “the eating away budget” since it had no resources available for the combat readiness renewal or the development of the Armed Forces.
However, the experience of the defence policy implementation gained during the period 2006-2011 was taken into account whilst developing the State Comprehensive Programme of the Armed Forces of Ukraine reform and development for 2012-2017. The programme envisages the implementation of decisive and fundamental reforms that will be supported by the actual resources provision and this will lead to creation of a qualitatively new Armed Forces.
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