Why the government withholds payments to communities: an expert named three reasons

The State Treasury has suspended payments to communities due to a deficit of funds in accounts. The problem is exacerbated by delays in international aid, which is tied to eurointegration reforms.

Why the Treasury withholds payments As explained by Bogdan Slutskiy, an expert from the Center for Economic Strategy (CES), the delays in treasury payments can no longer be considered a normal technical pause. At the same time, the situation does not yet indicate a full-blown crisis of state finances: it is a sharp temporary shortage of funds in the Treasury's accounts. The analyst named the key reasons for this problem: very large expenditures (primarily on defense); a reduction in tax revenues due to blows to Ukrainian enterprises by the Russian Federation; delays in the receipt of part of external financing due to unmet reforms. Slutskiy also notes that the presence of planned expenditures in the budget does not mean that the necessary money is available in the account at a given moment. Also read: Communities may be left without funds for critical needs due to government decisions, expert says. In accordance with Government Resolution No. 590, the Treasury makes payments in the established order of priority. First, military needs, salaries, and social payments are funded, while capital repairs and construction may wait. As a result, the communities with significant infrastructure projects feel the greatest problems, the expert says. How international aid is connected to payments One of the key reasons for the budget gap Slutskiy cites is delays in international aid. Part of the funding depends on Ukraine meeting obligations to international partners, including the implementation of eurointegration reforms. “Not all reforms tied to funding are supported because some of them are complex and unpopular. For example, the Anti-Corruption Strategy for 2026-2030 years (bill 15230-d), is still not adopted, although it is one of the steps for the Ukraine Facility,” says Slutskiy. As a reminder, the Ukraine Facility program provides multi-year financial support to Ukraine from the European Union amounting to 50 billion euros for 2024-2027 years. According to the expert, failure to meet the necessary conditions can delay cash receipts, causing the government to move planned expenditures and restrict payments. In particular, a large portion of capital expenditures accumulated in the first nine months of the year has been shifted to December. This creates additional risks, because at year end local communities and state institutions will have to complete a large volume of work in tight timelines. What are the consequences for communities Delays in treasury payments affect not only local budgets but also businesses that perform work for communities, Slutskiy explained. Contractors may wait for payment for weeks for already completed orders, while they need to pay employees and finance current costs. For small businesses this means a reduction in working capital. Going forward, companies may price in the risk of delays in the cost of their services, making repairs and other works for budgetary institutions more expensive. In addition, delays in government payments are already affecting certain business support programs and housing lending. At the same time, the shift of a large amount of capital expenditures to December creates a risk that part of the planned works will not be completed by year’s end. Also read: Communities blocked 20 billion UAH in payments: AMA warns of risks before winter. A separate question is the budgetary risks for next year. According to the Ministry of Finance, Ukraine will need 2027 billion dollars in external financing in 52,5. As of October, 32,6 billion dollars of this amount remained unfunded. If the financial gap cannot be closed, local expenditures, repairs, and construction may come under pressure again. Ways out of the situation In the opinion of the CES expert, one way to reduce budget pressure is to attract international aid on time, fulfilling obligations on which the corresponding payments depend. “So, there is no way to avoid difficult decisions. They are either made on time and associated funding is received, or they are postponed, and then money is sought for already planned expenditures. The second path is to reallocate less priority civil expenditures. But the possibilities for such reallocation are not unlimited,” Slutskiy concludes. It is worth noting that Prime Minister Serhii Kyrychky (Sergiy Koretsky) 20 in October said that part of the expenditures was unblocked, mainly for resilience plans. The head of the Cabinet stated that the government fulfilled all obligations and that parliament passed part of the laws necessary to obtain international aid. Therefore all postponed payments should be made “step by step.”

Recall that the mayor of Lviv, Andriy Sadoviy, said that as of the end of October the State Treasury had not made 4231 payment to the Lviv community totaling 901,7 million hryvnias. This creates threats to the operation of the municipal sector ahead of winter, transport, and construction. Earlier, former head of Ukrenergo Volodymyr Kudrytskyi stated that blocking government funds of local communities in the Treasury accounts will have catastrophic consequences for critical infrastructure across all regions of Ukraine ahead of winter.