"Shutdown" or consequence of a parliamentary crisis: who will be affected by the "freezing" of the budget and how long it will last

The sharp postponement of funding to the end of the year has effectively become a sequestration for contractors: businesses are already halting construction of strategic facilities and warning of risks to salaries and loans. In conditions of liquidity shortages, the government is forced to choose between basic payments and any development of the country. Dilo found out how long the freezing of state funding will last, whether social payments will be threatened, and how realistic the scenario of monetary printing of the hryvnia is.

What happened

The Ministry of Finance amended the state budget schedule and shifted some expenditures from September, October, and November to December. According to the head of the Verkhovna Rada budget committee, Roksolana Pidlasa, the Ministry of Finance postponed funding of capital expenditures. In September alone, they postponed 39 billion UAH of various expenditures to December. This primarily concerns the construction and reconstruction of hospitals, installation of shelters in hospitals and schools, energy protection and construction of social housing, and so on. However, in a comment to Dilo the deputy noted that this will affect other budget expenditures as well, including postponed financing of grants for businesses. At the same time, due to the specifics of the budget process, for certain projects shifting expenditures to December will mean their cancellation.

"When we talk about capital expenditures, we understand that postponing them to December means that this year they will not be funded at all, because it is simply impossible to do," Pidlasa explained.

As a result, businesses have already begun announcing suspension of work. Thus, on 17 September, the road infrastructure group Autostrada announced the cessation of works.

"Today the state, in one day, without warnings, any discussion or dialogue, stopped financing all capital expenditures," wrote the company owner Maksym Shkil on Facebook.

According to him, this directly hits companies' ability to pay salaries, service loans, and settle with suppliers. In Kyiv, Autostrada is building the Vynohradar metro, working on Kharkivske Highway and repairing the interchange near Chernihivska station. Other companies whose projects were also stopped may have received less funding, although they have not yet made public statements. So Autostrada is not necessarily the first case, just the only one made public so far.

Parliamentarians name two reasons for this step by the Ministry of Finance. First, it is the failure to pass a number of important bills that the parliament long could not vote on but which were a condition for Ukraine to receive financial assistance from partners. In particular, this concerns a controversial law that provided for abolishing exemptions on parcels worth up to 150 euros.

"This is not a surprise, this is not news, everything was moving toward this, and government officials and the new prime minister openly said so," says deputy chair of the Committee on Finance Olga Vasylevska-Smaglyuk.

She notes that the government and the Ministry of Finance repeatedly warned the Rada: if parliament does not vote for the laws necessary to receive international financial assistance, there will be no funds in the budget. Those inflows had already been built into and scheduled in the budget, but parliament delayed.

The second reason is Russia's strikes on Ukrainian ports, warehouses and enterprises, which intensified in the summer. According to Pidlasa, in eight months revenue underperformance amounts to 33 billion UAH, of which 15,6 billion UAH the state missed only in August.

The approaching problem was known in advance. On 10 September, Finance Minister Serhiy Marchenko warned parliamentarians that due to a liquidity shortage the government is cutting expenditures. The Ministry of Finance prepared a plan for limited liquidity: postponing secondary expenditures to December, unconditional priority for the security and defense sector, and freezing all construction programs, including local budgets and social facilities. The extreme scenario Marchenko did not rule out at the time was monetary financing of the budget, i.e., printing hryvnia, with the risk of inflation and pressure on the exchange rate.

Possible consequences and how long it will last

The comparison to an American shutdown, which has already entered circulation, is considered incorrect by Oleg Pendzyn, director of the Economic Discussion Club. A shutdown is exceeding the borrowing limit, while in Ukraine it is a physical lack of funds in the single treasury account. However, he notes that the state has crossed the line and there is simply no money in the budget.

"This is a serious shortage of funds. If macrofinancial assistance from our partners does not arrive on time, the Ministry of Finance will have an alternative: either finance salaries or capital expenditures. It will finance salaries," the expert says.

He notes that if money is still insufficient, the state may focus on financing protected budget items. Such items that are financed under any circumstances include special expenditures, salaries and the public debt. Social payments, Pendzyn says, are not among the protected items — despite the government's emphasis on their continuity.

Head of the analytical department at Concorde Capital, Oleksandr Parashchiy, assesses the situation differently. In his view, there is not yet a state inability to pay: the government is demonstratively showing that the situation is worse than deputies see, to force the Rada to fulfill legislative obligations tied to international assistance. Regarding the hierarchy of risk, both experts agree: the first to suffer are non-defense capital expenditures, which are the easiest to cut. Next under attack, despite their inviolable status, could also be defense procurements as the largest budget item.

Stopping state orders triggers a reverse effect on the budget itself. Vasylevska-Smaglyuk points to a cumulative hit: companies working on state contracts get less work, reduce or lay off employees. Thus the state receives less in taxes from those businesses and less personal income tax from their employees' salaries. In other words, savings on capital expenditures partly return as a hole in revenues.

The horizon of the problem is not limited to December. Pidlasa does not rule out that the situation could extend into January–February 2027 of the year, and she ties this directly to parliament. Pendzyn states the same condition, saying the duration of the deficit will depend on whether macrofinancial assistance from partners arrives on time. Thus this is not a temporary cash gap that will close with the new budget year, but a scenario able to repeat until the Rada adopts the laws required for external financing.