Public finance is one of those areas that citizens do not understand very well, and because of this, simplifications and manipulations flourish. Phrases such as “endless debt” or “IMF dictate” can be found on social media, in the media, and even in the speeches of some politicians. The budget is perceived as a box or a wallet, whereas in reality, it is a management tool.
Over the past decades, Ukraine has been implementing a gradual reform of public financial management. Medium-term budget planning has been introduced, treasury services have been improved, a large amount of open budget data has appeared, and rules for public debt management have been established.
Thus, reality is much more complex than the popular clichés, which we will examine below.
What is the state budget
Before examining the myths, let us define the terms, as some misconceptions stem precisely from misunderstandings of them. The state budget is the country’s financial plan for the year: a document that records where the state gets its funds and how it spends them. In most countries, it is adopted by parliament and has the force of law.
The main source of budget revenue is taxes: personal income tax (PIT), corporate income tax, VAT, excise duties, customs duties, and other mandatory payments. But these are not the only sources of income for the state. The state also receives revenue from state-owned enterprises and non-tax revenues (fines, administrative fees). If these revenues are not enough to cover expenditures, the state resorts to deficit financing: it issues government and eurobonds, attracts external loans, or receives international financial assistance. In the conditions of full-scale invasion, the structure of the Ukrainian budget has changed significantly. Almost all of the state’s own revenues are directed to the security and defense sector, while social, humanitarian, and part of other expenditures are largely covered by external financial assistance.
Key expenditures of the State Budget 2026, UAH billion.
The state budget is an instrument of economic policy. Through it, income is redistributed, public goods are financed (defense, basic education, healthcare, etc.), and anti-crisis support and development stimulation are carried out.
If budget revenues exceed expenditures, a budget surplus arises; if the opposite is true, a deficit occurs. Throughout the entire history of independent Ukraine, the budget has been in surplus twice, in 2000 and 2002. The accumulation of deficits forms public debt. If the deficit is an indicator for a single year, then public debt is the accumulated result over time.
These basic concepts are the key to understanding most discussions about public finance — and most manipulations around them.
Myth: A budget deficit is always bad
In public perception, a budget deficit is automatically associated with irresponsibility and catastrophe, because that is how household budgets work. But in reality, a deficit is also a tool, the effectiveness of which depends on the context.
Economic theory states that fiscal policy is the use of government spending and taxation to influence the economy. A deficit may be justified and even necessary. If a country is in crisis, production slows, households reduce spending, and tax revenue decreases because company profits and taxpayers’ incomes fall. At the same time, unemployment benefits and other social expenditures increase. All this automatically increases the deficit — but it is precisely because of this that the economy does not “fall” as deeply as it could without such support.
For example, anti-crisis measures during the 2020 pandemic. The United States adopted the CARES Act, a $ 2.2 trillion package, one of the largest in American history. Partly because of this, the U.S. federal budget deficit in 2020 reached $3.1 trillion (about 15% of GDP) — a record even compared to World War II. However, these expenditures became a “safety cushion” that allowed the American economy to show GDP growth of 5.7% in 2021 — the highest rate since 1984. EU countries followed similar paths: Germany, which before the pandemic adhered to the “black zero” policy, deliberately allowed a deficit exceeding 4% of GDP in 2020–2021.
The “black zero policy” is a budgetary approach in which the state aims to achieve a zero budget deficit. That is, not to spend more than it receives from taxes and other revenues.
And the state is not a person, and the system of planning its budget differs from how an individual plans their finances. For example, the state can issue, that is, print new money.
Why not simply print more money?
This is another misconception worth mentioning. Money in itself is not wealth. It is a medium of exchange that reflects the real amount of goods and services in the economy. If the state prints additional money without increasing real production, it does not create new value — it only devalues what already exists. Each new hryvnia or dollar “dilutes” the purchasing power of all previous ones. This is inflation, that is, rising prices.
Ukraine already went through a similar scenario in the 1990s: at that time, the National Bank effectively financed both loans for certain sectors and a significant budget deficit. As a result, the country’s macroeconomic situation became unmanageable. In 1992–1994, inflation peaked at tens of thousands of percent, and real GDP sharply declined each year. This led to a drastic drop in the population’s standard of living.
An important nuance: it is not the government that prints money, but the National Bank, which is independent from other branches of government. The government cannot simply instruct the NBU to print a certain amount to cover the deficit. It was precisely the experience of the 1990s that became the main argument in favor of such independence: to prevent a recurrence of hyperinflation, Ukraine legally separated monetary policy from the government’s current interests.
Instead, the Ministry of Finance can issue government bonds — debt obligations that it sells to investors: banks, pension funds, foreign governments. In this way, the state borrows real money from the economy or from abroad, rather than generating new money out of nothing.
Myth: A state with debt is bankrupt
Almost every country in the world has public debt. In the United States, the federal budget has been in deficit almost continuously since the early 1970s. Japan lives with debt exceeding 200% of GDP, while at the same time enjoying some of the lowest government bond interest rates in the world and continuously fulfilling its debt obligations.
The United Kingdom was repaying debts dating back to the First World War, effectively until 2015. And this is only one part of the country’s total debt. As of 2025, the UK’s gross public debt amounts to 103% of GDP.
Of course, there are countries with almost zero debt, but these are rare and quite unique cases. Liechtenstein has the lowest level of public debt — a microstate in the center of Europe with a population of only 41,000 people, no natural resources, and a highly developed financial sector.
Dynamics of public debt in selected countries, % of GDP, 1980–2025.
A state, in general, cannot go bankrupt in the way a company or a person can. A business that is unable to pay its debts is liquidated: its assets are sold, creditors either receive their money or not, and that is the end of it. This does not work the same way for a state: it cannot be liquidated, state assets are not subject to seizure, and it continues to exist regardless of its debt situation.
What is sometimes referred to as a state’s “bankruptcy” is actually a default, that is, a refusal or inability to service debt on time. This is not the end of the state’s existence, but rather a loss of creditors’ trust, after which negotiations begin on restructuring, partial write-offs, or payment postponements. After a default, states are usually unable to borrow on external markets for several years.
Three factors are decisive in determining whether a state faces the risk of default and how quickly it can recover from it: to whom the state owes money (its own citizens or external creditors), in which currency (national or foreign), and under what conditions (concessional or market-based, short-term or long-term).
Ukraine’s public debt is growing rapidly: from 2022 to 2025, it has tripled and reached over 100% of GDP. This is due to the substantial need for external borrowing amid declining revenues and growing state budget expenditures.
The occupation of part of the territories, the loss of people, enterprises, land, and infrastructure, systematic shelling — all of this affects production, exports, and economic activity. Accordingly, the tax base, that is, state budget revenues, is shrinking. At the same time, expenditures are increasing to finance security and defense needs, as well as social protection for the population.
According to the Audit Chamber’s audit, despite the scale of the debt, Ukraine makes all debt payments on time and in full, taking into account agreed deferrals and concessional financing. Of course, the debt structure is not ideal. A significant portion of external borrowing is denominated in foreign currency, which increases currency risks, and the pace of debt payments outstrips GDP growth. In other words, under such conditions, repaying debts becomes even more difficult.
In 2015, Ukraine reached an agreement with eurobond holders on debt restructuring: payment deadlines were postponed, part of the debt was written off, and interest rates were reduced. All this made it possible to reduce pressure on the budget at a critical moment.
After the start of the full-scale invasion in 2022, the government agreed with creditors on a temporary pause in payments on eurobonds — to avoid spending foreign currency on settlements with investors when every resource was needed for defense and critical infrastructure. This pause later turned into a new restructuring agreed in 2024: repayment terms were extended, servicing costs were reduced, and Ukraine gained more time and space to cope with the debt.
A state with debt is not bankrupt. It is a state that uses the instrument of intertemporal resource redistribution. This mechanism can be applied both responsibly and irresponsibly. However, the very presence of debt is common practice, not a sign of inevitable collapse.
Myth: The IMF dictates conditions to Ukraine and fully controls the budget
The International Monetary Fund (IMF) is a global financial organization within the UN system. It provides loans to countries facing problems with the balance of payments and public debt, advises governments on economic and budgetary policy, and monitors the state of the global economy.
The balance of payments is a statistical report compiled quarterly by the central bank to show the full picture: how much money came into the country and how much left it. It records all economic transactions between residents of Ukraine and the rest of the world: exports and imports of goods and services, investments, and money transfers. It is compiled to understand whether a country earns more than it spends or lives on borrowed money. If a country sells more abroad than it buys, its current account of the balance of payments shows a surplus. If the opposite is true, a deficit arises, which must be covered somehow: by attracting foreign investment, taking loans, or spending foreign exchange reserves.
In relations with Ukraine, as with other countries, the IMF acts as a creditor and adviser: it provides access to relatively cheap resources and expertise, while the government voluntarily undertakes to carry out agreed reforms. That is, it is possible to refuse. And Ukraine has done this before.
Although reforms agreed with the IMF may concern the financial system, tax policy, or budgetary rules, the Fund does not have a decisive vote in these matters — it can recommend but not decide.
The budget is adopted and amended only by the Verkhovna Rada of Ukraine. No international organization has the legal right to vote for it or make changes to it. The draft budget is prepared by the government, and the key parameters — revenues, expenditures, and the deficit — are precisely fixed in law, which can only be amended by parliament.
Ukraine currently has a new four-year IMF program worth $8.1 billion for 2026–2029, designed to support the state budget and macrofinancial stability during the war. Ukraine receives the first tranche of about $1.5 billion at the start of the program, and a total of 4 disbursements, amounting to approximately $3.8 billion, are planned for 2026.
When the IMF agrees to lend to a country, it signals to other partners that the country is reliable to work with. Therefore, governments, international organizations, and investors are more willing to provide Ukraine with loans and assistance.
Conclusions
Public finances accumulate myths not by chance. A complex system encourages simplification, and simplification quickly becomes a tool for manipulation. When the public does not distinguish between deficit and default, debt and bankruptcy, loan conditions and external control, it becomes easier to promote any narrative convenient at the time of an election campaign or an information attack.
The budget is indeed not simple in structure. It is divided into general and special funds, has programmatic, functional, and economic classifications of expenditures, and operates under concepts such as appropriations, commitments, and cash expenditures, each of which differs from the others. Add to this interbudgetary transfers, subventions, and state-targeted funds, and the picture becomes truly confusing for an unprepared person.
But the structure’s complexity does not imply a lack of transparency. In Ukraine, budget information is officially open and accessible. The Ministry of Finance maintains the “E-data” portal — an open data portal for all government expenditures, down to the level of a specific payment. The Accounting Chamber publishes audit reports. Prozorro opens data on public procurement.
The article is produced by NGO Vox Ukraine with the support of the Askold and Dir Fund as a part of the Strong Civil Society of Ukraine – a Driver towards Reforms and Democracy project, implemented by ISAR Ednannia, funded by Norway and Sweden. The contents of this publication are the sole responsibility of NGO Vox Ukraine and can in no way be taken to reflect the views of the Government of Norway, the Government of Sweden, and ISAR Ednannia.
