Because of higher pay for military personnel, the government needs to amend the state budget. However, following the resignation of defence minister Mykhailo Fedorov, those changes have been thrown into doubt. Will the government still have enough money to cover military salaries?
During the years of Russia's full-scale invasion, several political traditions have emerged in Ukraine. Every spring, the government prepares for elections, while every summer it reshuffles cabinet ministers, often sparking public protests. The most consistent tradition, however, has been the revision of the defence budget halfway through the process of approving the following year's state budget.
There is an objective reason behind this pattern: the financial cost of the war has risen each year. By repeatedly revising spending proposals, the government is simply bringing the budget into line with reality.
This year, although parliament had approved a record increase of UAH 1.5 trillion (US$33 billion), those changes did not take into account the military pay reform introduced by former defence minister Mykhailo Fedorov.
Following Fedorov's resignation, the government's economic team has been left to decide how much additional defence funding the budget should receive and what that money should be spent on.
The cost of the reform
On 10 June, the Verkhovna Rada (Ukrainian parliament), approved major amendments to the state budget. Under the legislation, total government spending increased by UAH 1.5 trillion, including UAH 1.3 trillion (US$28.6 billion) allocated to defence. However, the approved budget does not include changes to the military pay system developed under Fedorov's Ministry of Defence. Incorporating those changes into the budget is the main reason further amendments are now required.
Fedorov presented the pay reform alongside a new system of military service contracts. The new contracts were intended to guarantee fixed terms of service for those who signed them, but they drew criticism, particularly from soldiers who have been serving since the start of Russia's full-scale invasion or even earlier.
Military pay was last revised in February 2023. At that time, the government abolished the monthly UAH 30,000 (US$660) bonus that had been introduced in the first days of the full-scale invasion for everyone serving in Ukraine's defence forces, including police officers, conscripts and military cadets. Instead, it introduced a range of new allowances and increased the minimum monthly military salary from UAH 13,000 to UAH 20,000 (from US$286 to US$440).
Since then, consumer prices have risen by 34%, making another review of military pay increasingly urgent. According to the former Defence Ministry leadership, the new payment system was intended to encourage more civilians to join the armed forces and make recruitment easier.
The government introduced the changes as part of a two-year pilot programme. Under the scheme, military personnel receive additional payments that vary, depending on where they serve and the nature of their combat duties. These bonus payments are calculated in proportion to the time spent carrying out the following eligible tasks:
- UAH 100,000 (US$2,200) per month for direct participation in combat
- UAH 170,000 (US$3,740) or UAH 70,000 (US$1,540) per month as a location-based allowance: UAH 170,000 (US$3,740) for conducting offensive operations on the line of contact, in Russian-occupied territory, in the area between Ukrainian and Russian positions or on Russian territory; UAH 70,000 (US$1,540) for conducting combat tasks close to the line of contact, within the area covered by a company strongpoint)
- UAH 40,000 (US$880) for each day spent advancing and capturing new positions
- UAH 20,000 (US$440) for each day spent retaking previously lost positions
The combined value of these bonuses cannot exceed UAH 460,000 (US$10,120) per month. This limit does not include a servicemember's regular salary or the following additional rewards:
- UAH 100,000 (US$2,200) for capturing a Russian soldier alive (shared among everyone involved in the capture)
- UAH 15,000 (US$330) for each Russian soldier killed in close-quarters combat or with small arms
Military personnel serving in rear areas who are not eligible for combat-related bonuses receive a rear-area allowance of UAH 10,000 (US$220) per month. As a result, the minimum monthly pay for a servicemember is expected to rise from the basic UAH 20,000 (US$440) to UAH 30,000 (US$660) per month.
Why did the government introduce these increases through bonuses rather than by raising base military salaries? One likely reason is that military salaries are used to calculate pensions for around 500,000 retired military personnel and members of the security services. Increasing the base salary would therefore have required those pensions to be recalculated as well.
While preparing the regulation introducing the new allowances, the Finance Ministry estimated that implementing the scheme over the rest of 2026 would require an additional UAH 107.7 billion (US$2.4 billion). Even after the UAH 1.5 trillion (US$33 billion) increase in defence spending, that money has not been allocated in the state budget.
The Defence Ministry has previously argued that the higher payments could be funded without amending the budget.
"We are finding this money within the Ministry of Defence by stopping purchases we don't need, holding competitive tenders and cutting spending wherever savings can be made," Fedorov said.
At his final press conference as defence minister, he said that shifting part of the ministry's weapons procurement to competitive tenders had reduced costs by as much as 20%, saving billions of dollars that could then be redirected to other priorities.
Whether those procurement savings will continue under the new defence minister remains unclear. However, according to sources in both the Verkhovna Rada and the Finance Ministry who spoke to Ekonomichna Pravda, the defence budget will still have to be increased by another UAH 200-250 billion (US$4.4-5.5 billion) regardless. The Defence Ministry submitted that funding request before Fedorov left office.
A dangerous tradition
Higher military pay is not the only reason the defence budget needs to be revised, according to a source in the government's economic team.
"These are the Defence Ministry's own calculations. Besides the higher salaries, they've also factored in the fact that they started the year with a UAH 300 billion (US$6.6 billion) shortfall," the source said.
In other words, when parliament approved the 2026 budget in 2025, planned defence spending for 2026 was set UAH 300 billion (US$6.6 billion) lower than the actual level of defence spending in 2025. How did the government end up reducing defence spending by UAH 300 billion (US$6.6 billion) while drafting the budget, and why could the same thing happen again?
Under Ukrainian law, the government must prepare the following year's budget about six months before it begins. This time lag inevitably reduces the accuracy of forecasting and often fails to reflect the latest developments. As a result, when planning defence spending, the government frequently bases its calculations on the current year's budget. That is exactly what happened in 2025.
However, while parliament was debating the 2026 budget, the government also submitted amendments increasing the 2025 defence budget by UAH 300 billion (US$6.6 billion). Those changes were not reflected in the 2026 budget before it was approved, leaving defence spending in the final version lower than intended.
The same situation could arise when preparing the 2027 budget. The government is expected to increase defence spending when parliament debates the budget in September, but those changes may not be incorporated into the draft 2027 budget, which must be submitted to parliament by 15 September.
Even if the planned UAH 200-250 billion (US$4.4-5.5 billion) increase is included when drafting the 2027 budget, that will not prevent further revisions. Every year the government makes budget changes worth hundreds of billions of hryvnias. There were 14 such revisions in 2022 alone, while the 2023 budget had originally been prepared on the assumption that the war would end by the middle of that year.
Parliament usually approves major budget revisions in the autumn to ensure the armed forces remain funded during the final months of the year. This is partly because the government effectively brings forward some defence spending, using money originally allocated for the end of the budget year during its opening months.
Budget changes in doubt
The amendments to the 2026 budget need to be approved in September if the government is to continue paying military salaries and bonuses towards the end of the year. Despite this, the government has yet to submit the relevant legislation. In fact, many sources interviewed by Ekonomichna Pravda are unsure whether the amendments will be introduced at all.
"The Defence Ministry proposed these changes before Fedorov resigned," said one source from the government's economic team. The new minister may decide to review everything. For example, they could cancel the salary increases and buy more drones instead or reduce procurement and focus on stepping up mobilisation. At this stage, nobody knows."
Another government source told Ekonomichna Pravda that the authorities may decide not to amend the budget at all and instead fund the higher military pay using the Defence Ministry's own internal resources.
However, a source in the Finance Ministry pointed out that budget amendments are also needed to provide funding for newly-created ministries. These include the Ministry of Agrarian Policy and Food, which has been separated from the Ministry of Economy and the Ministry for Communities and the Ministry for Infrastructure Restoration, which previously operated as a single ministry.
Another unresolved issue is where the additional money would come from. At present, the only realistic source of funding for higher defence spending is the €90 billion European Union loan. However, the defence-related portion of that package – €60 billion allocated for 2026-2027 – may only be used to purchase military equipment.
To receive instalments from the non-defence part of the loan, which could in theory help finance higher defence spending, Ukraine must meet a number of conditions, including passing legislation required for European integration. So far, however, parliament has made little progress in that area.
Moreover, MPs will remain on their summer recess until the end of August, although they will officially continue working in parliamentary committees and their constituencies. Until then, there is little reason to expect the appointment of a new defence minister, clarity over defence funding or the adoption of the legislation required to unlock further EU financial assistance.
At the very least, assembling enough MPs to approve all these measures before then is likely to prove difficult.
Yaroslav Vinokurov
Translated by Tetiana Buchkovska
Edited by Shoël Stadlen