By Olena Harmash
KYIV (Reuters) -Ukraine's parliament approved the 2025 state budget in the final reading on Tuesday, channelling more funds for Kyiv's defence efforts as Russia's full-scale invasion reached its 1,000th day.
Ukraine plans to spend 2.2 trillion hryvnias ($53.7 billion), or about 26% of its gross domestic product, on defence and security next year, officials said.
"All taxes of citizens and businesses next year will be directed to the defence and security of our country," Prime Minister Denys Shmyhal said.
"Record amount of funds will be directed to weapons' production and purchases. There will be more funding to modernise our weapon industry and also to buy drones," he said in a statement.
As Kyiv troops battle a larger and better-equipped enemy along a more than 1,000-kilometre frontline, demand for weapons, ammunition and funds to pay soldiers' wages keeps growing.
Next (LON:NXT) year budget spending is planned at 3.6 trillion hryvnias while revenues excluding grants and international aid, are targeted at 2.05 trillion hryvnias, the finance ministry said.
The government will implement Ukraine's first wartime tax increases for population and businesses to be able to boost its domestic revenues in 2025.
The budget deficit of about $38 billion will be covered with financial aid from Kyiv's Western partners as well as the government's domestic borrowing.
The International Monetary Fund, a key lender, said that IMF staff and Ukrainian authorities have reached an agreement that would give Ukraine access to about $1.1 billion.
Finance Minister Serhiy Marchenko said the budget's other priorities next year would be to support residents as they battle wartime economic and security challenges.
The government also plans measures to support economic recovery but it expects growth to slow to 2.7% in 2025 from a target of 4% this year due to war, expected energy deficit and staff shortages.
Ukraine's weapon production industry has been one of the key drivers for economic growth this year and the government plans to ramp up production further in 2025.
President Volodymyr Zelenskiy, who presented Ukraine's resilience plan, said Ukraine was planning to produce at least 30,000 long-range drones and 3,000 cruise missiles and drone missiles next year.
The government will channel 739 billion hryvnias into weapons production in 2025, 34.1 billion hryvnias more than this year, the finance ministry said.