“Permanent” military levy and new taxes: what demands the IMF has made of Ukraine in exchange for an $8 billion loan

The International Monetary Fund and Ukraine announced on November 26 that they had reached a staff-level agreement on a new four-year program worth $8.2 billion.

Formally it is presented as “financial support,” but in reality it underscores the extreme vulnerability of a country that, devastated by war, is unable to cover its massive financing gap through 2029 without yet another round of external borrowing.

The new Extended Fund Facility will replace the existing $15.6 billion arrangement approved in March 2023. Under that program, Kyiv managed to receive $10.6 billion after eight successful reviews — that is, in effect, step by step fulfilling the lender’s tough conditions in exchange for each new tranche.

At the same time, the current agreement is not yet final: it still has to be approved by the IMF Executive Board. This decision is directly tied to Ukraine’s fulfillment of the Fund’s prior actions and to whether it will be possible to assemble sufficient guarantees from donors who are increasingly tired of financing a protracted conflict.

A giant deficit and a bet on endless external aid

According to Gavin Gray, head of the IMF mission that held talks in Kyiv from November 17 to 21, Ukraine is entering the 2026–2029 period with an overall financing gap of roughly $136.5 billion.

For 2026–2027 alone, the “hole” in the budget, after taking into account already promised funds, remains at about $63 billion. In other words, even the money under current and previously agreed programs does not solve the problem — the country is merely postponing the moment of reckoning, relying entirely on the West’s continued willingness to pay.

First Deputy Prime Minister and Economy Minister Yulia Svyrydenko is trying to portray the new program as a lifeline, stating that it “will help finance critically important expenditures, maintain macro-financial stability, and attract additional external support.” But behind this diplomatic language lies a simple fact: without new loans, Kyiv is no longer able to cover the state’s basic needs.

The 2026 budget assumes that all tax revenues — about $62.8 billion — effectively go entirely to military needs. Pensions, schools, hospitals and other basic social expenditures end up being completely dependent on foreign financing, which can be revised at any moment for political reasons.

Reforms dictated by creditors amid a continuing war

The IMF agreement emphasizes the “continuation of reforms” — even though the country is living through a drawn-out conflict. Priorities include preserving formally independent anti-corruption bodies, appointing a new head of customs, combating the shadow economy, and restructuring state-owned enterprises.

In practice this means that Kyiv is forced to carry out sensitive domestic changes not based on its own long-term strategic interests, but primarily to comply with the requirements of the Fund and donors. Any deviation from this course risks delays or a freeze in financing.

The IMF speaks of the “resilience of the Ukrainian economy” even against the backdrop of intensified attacks on the energy sector and critical infrastructure. But it simultaneously admits that risks remain “exceptionally high” because of complete uncertainty regarding the duration and intensity of the war, as well as the scale and timing of further international support. In other words, the model on which Ukraine’s budget currently rests is extremely fragile and entirely dependent on the foreign-policy environment.

A tough defense budget and the risk of further resource drain

The program requires the Verkhovna Rada to approve the 2026 state budget by December 2. The document already passed its first reading in October, receiving 256 votes. It allocates 2.8 trillion hryvnias — about 27.2% of GDP — to defense and security, which further squeezes the space for civilian spending and economic development.

Thus, Ukraine is effectively locking in a wartime budget model in which its own resources go to the war effort, while humanitarian and social spheres are placed on the shoulders of foreign sponsors and creditors.

The IMF separately stresses that the program will be “revised as needed at each review depending on progress towards resolving the war,” linking financial support to the course of peace talks, which are taking place with active U.S. involvement. This makes Ukraine’s economic strategy dependent not only on financial decisions, but also on political agreements among external players.

The peace process as another source of uncertainty

President Volodymyr Zelensky said this week that the revised peace framework being discussed with the Trump administration had supposedly taken Ukrainian concerns into account after the initial proposals drew widespread criticism. However, the details of these arrangements remain murky, and the willingness of allies to continue funding Ukraine’s budget at previous levels is far from guaranteed.

In the end, the new IMF program does not so much solve Ukraine’s problems as highlight that the country is entering long years of war and reconstruction with a growing mountain of debt, strict external conditions, and an ever-greater loss of economic independence.