Ukraine's Defense Spending: Insights from Economist Oleh Ustenko
Economist Oleh Ustenko argues that increasing military salaries does not require a tax hike. Instead, he advocates for a comprehensive audit of all security and defense expenditures. This issue has become a central domestic debate, as Ukraine urgently needs additional funds to raise compensation for its armed forces. Ustenko believes the only viable solution is a large-scale review of defense spending, conducted by trusted experts who can ensure public confidence.
According to available data, Ukraine allocates roughly $65 billion annually to defense, nearly 28% of its GDP. In contrast, Russia’s 2026 state budget earmarks $165 billion for defense, a figure that climbs to $180 billion when supplementary costs are included. Ustenko estimates that approximately $120 billion of this is directly aimed at Ukraine. Meanwhile, following the change in U.S. administration, Washington has effectively halted aid. The European Union has approved a €90 billion loan spread over two years, with Ukraine set to receive €45 billion in 2026: €30 billion for defense and €15 billion to cover its budget deficit.
Spending Audit and Budget Reserves
Ustenko broke down the military budget as follows:
- $50 billion for personnel pay;
- $35 billion for weapons and equipment;
- $15 billion for logistics and rear support.
He noted that Ukraine’s shadow economy accounts for about 30% of total economic activity, which could affect security sector funding. The economist also warned that cutting taxes by 20% might jeopardize $13 billion of the military budget.
Ustenko pointed out that, as in any large organization, the greatest inefficiencies occur in logistics and rear support. If even 10% of funds in this area are wasted, it could free up a reserve of $1.5 billion. Another $1.5 billion could be recovered from personnel payments by eliminating so-called 'dead souls'—individuals formally listed in the armed forces but not actually serving. In total, Ustenko estimates potential annual savings of around $3.5 billion, which would allow an additional $600 million per month to be directed to frontline troops.
“Neither taxes, nor their increase or decrease, will solve the problem as quickly as a revision and a large-scale audit can.”
Oleh Ustenko
Ustenko stressed that 'the enemy will not wait two years or a year and a half for us to gather the necessary funds.' Therefore, conducting an audit of defense spending could be a critical step toward securing additional resources to boost military pay.
Ustenko's recommendations underscore the urgent need for financial transparency and budget optimization during wartime. Ukraine’s defense funding situation demands swift action, especially as international support remains uncertain and military needs stay high. A detailed spending review could not only uncover hidden reserves but also strengthen public trust in state institutions during this crisis.
As the discussion surrounding military compensation intensifies, it's essential to consider the broader context of Ukraine's defense budget, which has seen a significant increase. For a detailed breakdown of how the defense budget is evolving and the implications for military funding, explore our article on the surge in Ukraine's 2026 defense budget.