In 2012 BMI expects a significant rise in dollar spending on the Ukrainian defence forces – up to US$4.65bn from 2011s figure of US$4.06bn, representing a growth of around 14%. This is on the back of the growth of the Ukrainian economy, in part fuelled by the new found stability of the value of the hryvnia, and the associated competitive advantages this has brought. This figure is roughly in line with economic growth in other sectors of the economy – and leaves military spending at 2.7% of GDP. This is significantly higher than the majority of other developed economies, and in particular most NATO countries. This figure is 8.4% of government spending, a figure we see rising to around 12% at the end of the forecast period.

However, defence equipment appears low on the governments list of spending priorities. In 2010, only 7% of the MoD budget was spent on new arms and equipment, whereas close to 88% was set aside for maintenance – signalling a clear over-reliance on vintage equipment. While Yushchenko wants to devote more spending for the armed forces, the global recession and problems with Russian gas supplies has limited government expenditure and the defence budget has suffered. An increase in spending is unlikely in the near future.

The reputation of Ukraine as being one of the former Soviet countries most able to assist in the upgrade of arms produced in the former USSR was confirmed in February 2011 by the imprisonment of two men of stealing information from the NITKA naval training facility in order to assist the Chinese government in re-fitting the former Ukrainian ship, the Varyag, reported Sebodnya, a Ukrainian paper.

Russian gas remained a controlling issue through 2011; however, Russian re-offered lower prices on gas to Ukraine in exchange for its accession to Russias customs union, which also counts Kazakhstan and Belarus as members. Also offered was the offer to buy the Ukrainian gas pipeline system – two ideas which have not received much warmth in Kiev. This is because the former would limit the ability of the Ukraine to accede to the EU, a stated long term foreign policy goal. Ukraine requested a special 3+1 deal to access the trade area under Russias control, but this plan was flatly rejected – indicative of the fact that Russia does not view the Ukraine as gaining special privileges to either regional grouping through its current stance.