Ukraine's allies face funding crunch, threatening arms supplies - media

Bloomberg reports citing sources familiar with the situation.

According to the publication, much of Ukraine's military aid for 2025 is tied to a Group of Seven agreement to provide $50 billion in loans from profits generated by frozen Russian central bank assets. Allies are still negotiating the final details of this deal, and the U.S. is seeking guarantees that Hungary won’t obstruct European Union measures. If a consensus isn’t reached, the final amount may be reduced.

As reported by Bloomberg, even if an agreement is achieved, $50 billion will not sufficiently cover Ukraine’s needs for another year of war, and allies will need to explore funding options beyond this framework, according to sources. President Volodymyr Zelenskyy is currently in the U.S. presenting a "victory plan" to President Joe Biden. This package relies on security assurances, including an invitation to join NATO, which Zelenskyy believes are essential to increase pressure on Vladimir Putin to end the war.

“The push for aid was complicated by tensions with Republican nominee Donald Trump, who criticized Zelenskyy but later agreed to meet him. Trump has suggested that Ukraine should negotiate with Moscow, where Russian forces are making slow but steady advances in the eastern Donetsk region and have severely damaged Ukraine’s energy infrastructure,” the publication states.

According to Bloomberg, these difficulties are exacerbated by a funding shortfall. Ukraine's Prime Minister Denys Shmyhal noted last month that the Ukrainian government anticipates a budget gap of 19% of GDP in 2025, leaving a need for approximately $35 billion to cover this deficit. More than half of this amount is expected to come from International Monetary Fund and EU assistance, leaving around $15 billion needed to balance the budget - an amount that may require part of the G-7 loans to address, according to officials.

In addition, there is the issue of military funding. The $50 billion being arranged by the G-7 would be roughly equivalent to the military aid provided by the U.S. and key European allies between January 2023 and June this year. During that period, the U.S. contributed about €31.5 billion, while Germany, the UK, France, and Italy together provided approximately €15.7 billion, according to data from the Kiel Institute.

Next year will be critical, as Russia’s economy may start facing increasing pressure in 2026, potentially challenging Putin’s belief that time is on his side, according to a Bloomberg report citing a European government assessment. However, this assumes that the outcome of November's U.S. election, where Trump is in a close race with Vice President Kamala Harris, doesn’t change the war's dynamics beforehand.

Moscow, supported by shipments from Iran and North Korea, continues to allocate budget funds to the war effort. Russia plans to spend 13.2 trillion rubles ($142 billion) on defense in 2025, which would represent 6.2% of its GDP, with defense and security expected to consume around 40% of the total budget.

Ukraine’s European allies are grappling with their own fiscal challenges, as noted in a Bloomberg report. Chancellor Olaf Scholz's government faces constitutional debt limits, leading to reduced direct funding for Kyiv. France's new government, following a tumultuous election, is under EU pressure to address its deficit. In Italy, Prime Minister Giorgia Meloni's fragmented coalition may struggle with spending commitments.

Negotiations in Brussels regarding a new EU budget and potential joint defense spending are likely on hold until after the German election. Support from the UK, historically a key ally in providing advanced weapons, appears to be diminishing, according to insiders. Prime Minister Keir Starmer has cautioned voters about tough times ahead while asserting that Britain's backing for Ukraine is "ironclad."

Despite these challenges, NATO allies continue to pledge support. President Biden announced nearly $8 billion in new military aid for Ukraine and plans to convene a meeting with key allies during his upcoming visit to Germany. This announcement, made during Zelenskyy’s visit to the White House, confirmed that Biden is directing the Pentagon to allocate the remaining Ukraine assistance before his term ends, including additional air defense systems, drones, and munitions, according to Bloomberg.

• Recently, the Bundestag approved an increase in funding for military aid to Ukraine by about €400 million.