Tim Bulman
Andrew Keith
Volker Ziemann
OECD Economic Surveys: Ukraine 2025
Abstract
Ukraine’s economy has been resilient to the shock of Russia’s full-scale invasion. Effective policy responses, alongside firms and workers adapting to the new conditions and substantial external support have enabled a gradual economic recovery. The outlook is exceptionally uncertain, due to uncertainty about when and how the security situation will stabilise, and the scale and length of external support. Ensuring macroeconomic stability will help ensure solid foundations for a sustained reconstruction and recovery. Alongside effectively implementing structural reforms to lift investment and support employment, gradually returning the primary budget balance to modest surpluses when the security situation allows will be essential for public debt sustainability. Bolstering public revenues, improving the quality and effectiveness of public spending, and ongoing international support will be necessary to underpin a sustained recovery. Adapting to climate change and implementing emission and pollution pricing can help lay the foundations for a greener reconstruction and more resilient economy.
Ukraine’s economy has been resilient to Russia’s full-scale invasion, owing to the agility of businesses, workers and society at large, policymakers’ stabilising efforts, and the large scale of support from international partners. The resilience has also been enabled by households, firms and all levels of government reconstructing and reconfiguring their assets and activities. Still, the outlook remains exceptionally uncertain. While Ukraine’s international partners have developed mechanisms to improve the predictability of financial and in-kind support, transfers remain subject to factors both within and beyond Ukraine’s control.
After the initial shock, activity has gradually been recovering
In addition to the human toll of death, injury and displacements, the initial months of the full-scale invasion brought substantial disruption and losses to Ukraine’s economy. The war started just as Ukraine’s economy was recovering from the disruptions of the COVID-19 pandemic and follows military conflict and invasion in eastern Ukraine since 2014 (Box 1.1 discusses economic developments immediately prior to the full-scale invasion). Destruction and disruptions to businesses and infrastructure, temporary occupation of territory as well as the internal and external displacement of populations contributed to activity falling by 29% in the first half of 2022 (Figure 1.1; Box 1.3 discusses the statistics available to track Ukraine’s economy). The greatest economic disruption occurred in the first months of the full-scale invasion. For example, up to 75% of small businesses stopped operating in March 2022 (NBU, 2022[1]). Industrial production and commerce, and the much of the mining, metallurgy and heavy industries in the southeast have been temporarily occupied or destroyed (World Bank, Government of Ukraine, European Union, United Nations, 2023[2]).
Since mid-2022, activity has gradually recovered, as firms adapted to the new situation and production reoriented to defence and reconstruction. Liberation of territory temporarily occupied by Russian military forces early in 2022, return of many of those who had left Ukraine at the onset of the invasion, firms relocating their operations, traders finding new routes to access supplies and markets, and businesses adapting to the new context enabled activity to gradually recover (Figure 1.1, Panel A). Favourable weather conditions in 2023 and the first half of 2024 enabled strong agricultural production and supported exports, despite destroyed storage and logistics (Figure 1.1, Panels B and D). The dramatic increase in defence spending spurred new manufacturing and related sectors, and provided incomes to the mobilised defence forces, supporting consumption, while reconstruction work increased construction activity. The pace of recovery slowed over 2024, as renewed Russian attacks on electricity infrastructure (Figure 1.2), businesses and civilians weighed on activity, despite efforts to rebuild (Box 1.2 discusses the evolution of electricity supply). Overall in 2024, activity was about 22% below 2021 levels.
The economic shock and recovery have been heterogenous across regions and types of firms, reflecting the different impacts of military action and attacks (Chapter 2 details the damages and losses). Many firms in the east, in or close to areas invaded by Russia, have ceased operations. Many of these firms have relocated to western areas, although they have faced challenges relocating and hiring workers. Some digital firms have moved to hybrid operations, with part of their workforce located outside of Ukraine. Trends across sectors have been divergent, for example as surging defence, logistical and reconstruction needs have created capacity shortages in these sectors, while displacement has cut demand in sectors such as social services.
In the first half of the 2010s, the economy was heavily affected by a banking crisis that followed the Global Financial Crisis. Following the 2013-2014 ‘Revolution of Dignity’, Crimea and the Donbas area in eastern Ukraine were temporarily occupied by Russian forces. By 2015 inflation neared 50% while output had fallen by 16% compared with 2013 and 21% from 2008.
In the years following the Revolution, reforms to improve macroeconomic management accelerated, and modest output growth resumed, averaging 2.9% annually between 2015 and 2019. The budget deficit was reduced from an average of 4.0% of GDP between 2010 and 2014 to 2.0% of GDP between 2015 and 2019, allowing public debt to decline from a peak of 80% of GDP in 2015 to below 50% of GDP by 2021. The central bank’s independence and operational capacity were strengthened (see Box 1.4), supporting the containment of inflation, rebuilding of foreign exchange reserves and opening of external accounts.
Structural reforms also accelerated over the second half of the 2010s, improving the state’s capacity and developing the role of market signals in the economy, which laid the foundations for Ukraine’s resilience following the full-scale invasion. For example, energy pricing reforms and gas market liberalisation reduced fiscal costs and distortions in energy markets; land reforms contributed to improving agricultural production; and the digital public procurement platform Prozorro improved the integrity and efficiency of public spending. PrivatBank, a large bank with significant non-performing loans and solvency issues, was nationalised. Regulatory reforms, decentralisation and regional development were also central to the late-2010s reforms. Alongside the important measures to improve the business environment discussed throughout this Survey have been efforts to contain special interests and rent-seeking, including through legislative limits on media holdings and political interests.
The Ukraine-EU Association Agreement drove many structural reforms. The Ukraine Plan 2024-2027 has become central to Ukraine’s policy reform agenda, with reforms and investments to advance towards EU accession, supported through the EU-funded Ukraine facility.
Note: Panel A: quarterly series are seasonally adjusted by the OECD (x-12 ARIMA). Panel B: economic activities are aggregated as follows: "consumer services" include wholesale & retail trade, transportation & accommodation, and food service activities; "business services" include information & communication, financial & insurance, real estate, and professional, scientific & technical activities; "public & social activities" include public administration, education, human health, and social work & arts. Panels B and C: total GDP may differ from the sum of the components due to rounding and statistical errors. Panel D: transport mode covers ports (Black Sea and Danube), railways and trucks. Data are yearly averages of monthly data, except for 2021 for which only Q4 (October-December) is available.
Source: State Statistics Service of Ukraine (SSSU), OECD calculations, National Bank of Ukraine (NBU), Ukraine Centre for Economic Strategy (CES).
The current account deficit widened to -5.3% in 2023 and -7.2% of GDP in 2024 (Figure 1.3). This compares with an average deficit of -1.9% of GDP over the five years to 2021. At the outset of the full-scale invasion, goods exports weakened, notably through the drop in metallurgy, minerals and agricultural export values, largely due to the destruction of production facilities. Services exports, led by IT services, have been more robust, although the closure of Ukraine’s airspace to air transport has curtailed related trade flows, and the loss of gas pipeline transit fees will lower export values in 2025. Imports remained robust with the rise in military and intermediate goods imports, electricity and energy equipment due to the destruction of Ukraine’s facilities, and externally displaced people’s spending. In addition to these developments were the large volumes of in-kind external military and humanitarian aid, financed by Ukraine’s partners. Logistics became a leading impediment to exports in 2022 and 2023, as security concerns closed or severely limited Black Sea shipping and blockades restricted transport across Ukraine’s land borders with the EU. These were progressively resolved by mid-2024, making logistics a relatively modest challenge for exporters.
Developments in electricity supply illustrate the broader challenges faced by Ukraine since February 2022 (Figure 1.2). Generation capacity was approximately 31 GW at the outset of the war (equivalent to about half the capacity of Italy). By mid-2024, approximately half of this capacity had been temporarily occupied, damaged or destroyed, starting with the Zaporizhzhia Nuclear Power Plant (5.5 GW capacity) occupied in early 2022. Heightened attacks by Russia between March and May 2024 cut an additional 9 GW of supply from thermal and hydro generators, which had been important sources of generation during periods of peak demand and so was important for the grid’s stability. Attacks also targeted the substation and transmission network, fragmenting the grid and endangering the safety of nuclear power plants. Over the summer of 2024, supply was between 0.8 GW and 2.3 GW short of demand, leading to loadshedding, which particularly affected microbusinesses and households.
Note: Panel A: cross-border data are sourced via the Fraunhofer Institute for Solar Energy Systems (ISE); the remaining data are sourced via the UA energy map (up to 2021) and private source (2022 onwards). Panel B: data are sourced via the monthly enterprise survey using the Business Tendency Survey approach at enterprise level. The survey, which started in May 2022, takes place in the second half of each month and uses a sample panel that includes 500+ enterprises located in 21 of 27 regions of Ukraine, including all companies' sizes.
Source: Green Deal Ukraina, UA Energy map, Fraunhofer Institute for Solar Energy Systems (ISE), IER: NRES (New Rapid Enterprise Survey): 242/ 2025.
The share of supply from renewables has grown especially in the summer months, relieving some of the lost nuclear and thermal capacity. While early in the war, exports of low-carbon electricity were seen as a potential source of income, by 2024 imports from Romania, Moldova, Poland and Slovakia have become essential to maintain electricity supply. After connecting with the European grid in February 2022, import capacity was increased to 2.1 GW from 1 December 2024. Businesses have invested in small generators, and the government extended VAT and excise exemptions and the 5-7-9 subsidised loan scheme (discussed in Chapter 2) to these purchases. (The programme simplifies businesses’ access to bank lending, with the state providing subsidises to reduce the interest rate to 5%, 7% or 9% depending on the type of borrower and borrowing purposes, up to prescribed borrowing limits).
Demand has fallen. Industrial consumption has fallen by half and household consumption by 20%, notably due to the 6.9 million people displaced outside of Ukraine. Energy-saving measures have also had some effect, such as an EU-funded programme to replace incandescent light bulbs with LED bulbs, which is expected to have reduced the demand for electricity by up to 1 GW (IEA, 2024[3]).
Further developing decentralised electricity generation, notably for renewable sources, will be central to ensuring reliable and sustained energy supply through the reconstruction and recovery. This will require addressing the financial pressure faced by utilities as they deal with reduced revenues and higher operating costs, reforming the regulations related to the electricity market and improving price signals for both producers and consumers (discussed in Chapter 2).
Grants and loans from Ukraine’s foreign partners have funded the current account deficit. After a near-pause in 2022, reinvested earnings, in part due to capital account restrictions, lifted recorded foreign direct investment in 2023 to nearly USD 4.4 billion (2.5% of GDP) and USD 3.5 billion (1.8% of GDP) in 2024. The increased reinvested earnings and other foreign direct investment flows were largely into wholesale and retail trade and finance and insurance businesses (Figure 1.3, Panel B). EU countries provided approximately three-quarters of foreign direct investment. Overall, these flows have enabled Ukraine to build its foreign exchange reserves to above USD 40 billion, or over 5 months’ worth of import (Figure 1.3 Panel D).
Ukraine’s statistical authorities have continued to publish many economic indicators since the start of the war. Others have been paused, but various private surveys allow for continued high frequency monitoring. Published official statistics are generally restricted to the areas within the control of the Government of Ukraine.
National accounts: expenditure and production accounts continue to be published on an annual basis. Quarterly estimates are published by the Ministry of Economy. Sampling frames of firms have not been updated. Information is limited on important sectors subject to military security, such as defence production and their activity is unlikely to be fully included in GDP estimates. Substantial revisions are likely once fuller information can be integrated.
External accounts, monetary and financial statistics, and prices continue to be published on a quarterly or monthly basis.
The Labour Force Survey has been discontinued since the start of the war. Unemployment is tracked through various household surveys. Comparability with historical data is limited.
Wage statistics continue to be published, at a quarterly frequency and with sector-level details. Data are based on tax and social security contributions and tracking of jobs ads and private employers.
Well-being indicators are based on various ad hoc household surveys conducted by sociological research bodies. Comparability with historical data is limited.
Surveys of business and consumer conditions and confidence are conducted and published at a monthly and quarterly frequency by various private bodies.
Publication of indicators of environmental conditions and emissions have been suspended.
The last national population census was completed in 2001. A national population census was planned for 2020 but suspended because of the COVID-19 pandemic, followed by the declaration of martial law and lack of funding. Completing a national population census once conditions have stabilised and permit will be central to updating and revising many indicators.
Note: Panel A: category 'Other' includes 'Industrial goods' and 'Other (including informal trade)'. Panel B: data for Q42024 will be adjusted by source upon receiving data of the annual financial statements of enterprises. Direct investment statistics starting with data for Q12022 was made based on available information of enterprises that provided reports and will be updated after receiving complete information after the termination/liquidation of martial law in Ukraine. The equity and investment fund shares do not include reinvestment of earnings. Panel C: Balance of Payments are recalculated at average monthly exchange rates. Data on international financial aid received (IMF loans, loans and grants received by the government) are recalculated at the exchange rate as of the date the funds are received. BOP data are compiled according to the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6). According to the Law of Ukraine on Protecting the Interests of Entities Submitting Reports and Other Documents Under Martial Law or in Wartime, part of information need for compiling balance of payments statistics are not collected. October-December 2024 data include only banking sector reinvested earnings. Estimation for 2022-2024 was made based on available information and will be revised after receiving additional information. Panel A & C: October to December 2024 data are preliminary estimates from source. Panel D: in March-June 2022, the NBU did not calculate the total reserves in months of imports due to the unstable situation.
Source: National Bank of Ukraine (NBU).
After returning to target, inflation has risen again
Inflation surged in the first months of the full-scale invasion, rising year-on-year to above 26% between October and December 2022, due to supply disruptions, higher operating costs, expanding money supply and the currency’s devaluation. Inflation then gradually fell below the central bank’s 5% target as the economy stabilised. Positive supply shocks from easing energy prices, good harvests, resuming trade and the diversion of food exports in particular to the domestic market slowed inflation to 3.2% year-on-year in Spring 2024. Monetary authorities reaffirmed their inflation objectives, helping to anchor expectations. Inflation then gradually rose again, as a hot and dry summer raised food prices, supply disruptions raised energy prices, labour shortages led to rising real wages and robust consumer demand, and the depreciated exchange rate passed into higher import prices (Figure 1.4). Headline inflation reached 14.6% in the year to March 2025, while core inflation rose to 12.4%.
Note: ‘Euro area’ corresponds to the fixed composition of 20 countries as of 2023, throughout the figures in this chapter. Panel A: The NBU has set the medium-term inflation target (as measured by year-on-year CPI growth) at 5%. Panel B: data are quarterly averages of monthly indices (December 2010=100).
Source: OECD Main Economic Indicators (Prices database), National Bank of Ukraine (NBU), State Statistics Service of Ukraine (SSSU).
While many jobs have been lost, labour shortages have become a central challenge
The labour market has become a major challenge for Ukraine’s economy. Many jobs were lost as businesses were damaged, closed or temporarily occupied, especially in the first months of the war, and the number of taxpayers registered in private businesses fell by 2.5 million (World Bank, 2023[4]). These figures do not incorporate mobilised personnel, with defence personnel estimated to have increased by about 3.5% of the 2020 labour force, from about 300 000 in 2021 to around 1.1 million in 2024 (World Bank, 2024[5]) (Global Fire Power, 2025[6]). The unemployment rate peaked near 26% in the second quarter of 2022 according to estimates by the National Bank of Ukraine (since the official labour force survey was suspended in early 2022, surveys by social research institutes track unemployment rates – see Box 1.3) (Figure 1.5, Panel A). Demand for workers started to rise from the third quarter of 2022, as activity started to recover, especially in the sectors most involved in defence and the regions farthest from the disruptions of the war. The unemployment rate is estimated to have declined modestly, to about 15% by March 2024, and to have remained near this rate through to early 2025.
The loss of adults available to work has constrained the growth in employment. Mobilisation and population displacement within and outside of Ukraine decreased the number of working age adults by 40% or about 5 million between 2021 and 2023, even after accounting for the return of 30% to 40% of the initial wave of externally displaced people (IOM, 2025[7]). By October 2023, finding workers, whether skilled or unskilled, was among the top three constraints to operating cited by businesses (Figure 1.5, Panel B). This partly reflected mismatches between employment demand and the location of potential workers. Many of the internally displaced persons relocated to areas where they could access housing or social support rather than areas with the best employment opportunities. Jobseeker activity, as measured by the number of resumes submitted to vacancies, fell to around 25% below the levels of 2021 from mid-2023 and remained at this level (work.ua, 2025[8]).
Note: Panel A: up to 2021 the source of unemployment data is SSSU, after 2021 is OECD calculations based on Info Sapiens survey. The source of labour force data is taken from the World Development Indicators (WDI) up to 2021, and OECD estimates based on WDI data onwards. Methodological notes on the compilation of LF statistics can be found here (Ukrainian only). Panel B: time series are computed as the difference between the shares of answers 'finding employees has become more difficult' and 'finding employees has become easier'. Panel C: data correspond to quarterly averages and are compiled according to the results from the state statistical publication “Survey of enterprises on issues concerning labour statistics” which covers legal entities and detached units of legal entities with 10 and more employees. Information has been compiled from reports submitted by enterprises and additional estimates of indicators and may be revised by source. A methodological note on the salary compilation can be found here. Panel D: the graph shows a selection of OECD countries. The severe material and social deprivation rate (SMSD) is an EU-SILC indicator that shows an enforced lack of necessary and desirable items to lead an adequate life. The indicator, adopted by the Social Protection Committee, distinguishes between individuals who cannot afford a certain good, service or social activities. 2023 data is defined as the proportion of the population experiencing an enforced lack of at least 7 out of 13 deprivation items (6 related to the individual and 7 related to the household); data for 2021 (Ukraine only) are obtained by the results of the Household Living Conditions Survey (HLCS) of the State Statistics Service of Ukraine (SSSU), which includes at least 4 out of 9 deprivation items.
Source: State Statistics Service of Ukraine (SSSU), World Bank, World Development Indicators (WDI), Info Sapiens; Institute for Economic Research and Policy Consulting (IER); State Statistics Service of Ukraine (SSSU); HSESS, SSSU HLCS, and Eurostat EU-SILC.
The shortage of workers has led to large wage increases in sectors such as construction and IT where defence activity has increased most or where the workforce is more affected by mobilisation. The average wage for jobs tracked on Ukraine’s largest employment website (work.ua) rose by 20% in the year to March 2025. Real wages fell by around 11% on average in 2022, as nominal wage rates were broadly stable, and consumer prices surged. In 2023 and 2024, slower inflation and faster nominal wage growth led real wages to rise by nearly 4% and 14% respectively, according to estimates by the Kyiv School of Economics based on Pension Fund of Ukraine data (KSE Institute, 2024[9]). Anecdotal reports suggest that the shortage of workers is breaking long-standing barriers to female employment. Women’s labour force participation in Ukraine lagged most OECD countries prior to the war, with legal and societal barriers to work in some professions (discussed below) now being overcome by the shortages of workers and loss of income sources.
Poverty indicators have improved little despite the strong real wage growth. At the peak in May 2022, 30% of the population reported having to save on food, compared with 15% in January 2022, according to a regular national survey (Centre for Economic Strategy, 2024[10]). Consumer food prices rose by 40% between January 2022 and June 2023. This rate declined modestly in the second half of 2022 and ranged between 20% and 25% through 2023 and 2024. Other surveys suggest substantially higher rates of hardship. Assessed poverty rates increased more among households with more children, especially those headed by a single parent or those in smaller communities. Poverty rates are higher among the approximately 4.6 million internally displaced persons, reflecting their distance from employment opportunities their loss of assets such as their home or land, and that their home regions have generally suffered greater economic damages.
Social protection measures (such as income and housing support and access to basic goods) have reduced humanitarian pressures. However, central government social protection spending has declined in real terms since 2022, reflecting other spending priorities. Subnational governments’ programmes have been strained by heightened needs, reduced revenues and other reconstruction and related spending. International humanitarian support peaked at over EUR 10.5 billion (5.4% of GDP) in 2022, declining to EUR 4.1 billion in 2024 (2.4% of GDP) (Trebesch et al., 2025[11]).
Monetary policy and financial supervision have contributed to Ukraine’s resilience
During the first months of the full-scale invasion, the National Bank of Ukraine (NBU) undertook emergency measures to sustain public finances. the banking sector and the financial system while limiting risks to macro-financial stability. It fixed the exchange rate against the USD (Figure 1.6) and imposed capital controls. It financed up to half of the government deficit and supported the banking system through a refinancing facility. From July 2022, as the economic situation stabilised and external support become more systematised, the focus of policy shifted to returning inflation to the central bank’s 5% target and to re-opening capital accounts while maintaining external stability. The exchange rate was devalued by 25% in July 2022, although capital controls remained. The NBU raised the main policy rate by 15 percentage points to 25% in June 2022, suspended refinancing operations for banks from November 2022, and started increasing minimum reserve requirements from December 2022. It ceased monetary financing of the budget deficit in January 2023.
The NBU eased monetary conditions as inflation returned towards target through 2023, cutting its key policy rate to 13.2% in June 2024. Then, as inflationary pressures grew again in 2024 and early 2025, it first increased banks’ reserve requirements then, from its December 2024 meeting, started raising its key policy rate, by a total of 250 basis points to 15.5% by March 2025. Banks’ high excess liquidity and the wide margins between deposit and lending rates (Figure 1.6) have blunted the transmission of changes in monetary policy, despite the introduction of policies to absorb some of that liquidity.
Note: Panel B: Official exchange rate of Hryvnia versus foreign currencies are computed as average of period. REER is Dec 1999=1. Data for the last month is preliminary and is the subject for further revision.
Source: National Bank of Ukraine (NBU).
Following the foreign exchange restrictions imposed during the first months of the full-scale invasion, controls on import payments, dividend repatriation and foreign currency loans were progressively eased from 2023, and the NBU transitioned to managed exchange rate flexibility from October 2023, allowing the official rate to gradually converge with the market rate (Figure 1.6, Panel B). Financial support from Ukraine’s international partners bolstered foreign exchange reserves and supported demand for the Ukrainian Hryvnia, countering demand for foreign exchange among Ukrainian households and firms. The exchange rate was broadly stable against the US dollar from mid 2024 to early 2025. Outflows following relaxation of foreign exchange restrictions were contained. The exchange rate regime remains managed, with regular interventions in the foreign exchange market including through reserves management. The central bank aims to move to a floating exchange rate as the economy normalises and other restrictions are eased. Allowing the exchange rate to depreciate during periods of higher demand for foreign exchange, while limiting volatility and remaining vigilant to the pass-through of higher import prices to domestic inflation, can support the economy. Market-driven exchange rate depreciation, while maintaining the primary goal of price stability, would support the Hryvnia purchasing power of foreign grants and contribute to exporters’ competitiveness despite their domestic operating cost challenges.
In a September 2024 update to its Monetary Policy Guidelines, the NBU recommitted to its inflation target. The target is defined as returning inflation to 5% over its policy horizon of three years, and allows for the horizon to be adjusted for economic conditions and for inflation to diverge from this target. The Guidelines provide for continued ‘managed flexibility’ of the exchange rate, while moving towards a fully floating exchange rate and protecting foreign exchange reserves. The central bank formalised an agreement with the Ministry of Finance on the triggers and nature of future monetary financing. It includes commitments to first draw down government deposits before seeking monetary financing, to consult with the IMF in case of monetary financing and limit the amount of such financing, and to avoid indirect monetary financing such as directed provision of liquidity to banks that could be used to purchase government securities. Such agreements are against the background of the NBU’s institutional strengthening since the mid-2010s (discussed in Box 1.4). Maintaining the NBU’s independence so that it can implement the agreed monetary policy framework, avoid monetary financing of the budget beyond exceptional circumstances, and ensure monetary policy supports well-anchored inflation expectations will contribute to macroeconomic stability.
The 2015 Law on the National Bank of Ukraine (NBU) granted the NBU institutional independence. In 2016, the NBU introduced inflation targeting with an initial target of inflation within two percentage points of 8% It also modernised payment systems. It supported the nationalisation of a large privately-held bank with a heavily impaired balance sheet, and the consolidation or closure of many small banks. Cross-country indices of central bank independence and transparency, such as those produced by Romelli (2024[12]) and Dincer, Eichengreen and Geraats (2022[13]), suggest that the independence and transparency of the NBU improved through the second half of the 2010s, although still lags those of many OECD central banks. The NBU’s reforms supported Ukraine’s resilience through the full-scale invasion. For example, the NBU’s improved operational integrity helped it maintain payments systems through the full-scale invasion, and supported the pursue of its inflation target.
The war has heightened pressures on the banking system, which, to date, have been managed with relative resilience. The non-performing loan ratio to outstanding loans rose by 12.6 percentage points, to peak at 39.3% in May 2023, before declining to 30.3% by January 2025 (Figure 1.7 Panel A). Loan performance fell as the war damaged borrowers’ assets, collateral and cash flow to service their loans. The bulk of non-performing loans are a legacy of banking crises following the global financial crisis and Ukraine’s economic crises of the early 2010s. In January 2025 over 55% of all outstanding NPLs were held by PrivatBank, which was fully nationalised in 2016 due to its balance sheet weaknesses. Other state-owned banks incurred the bulk of the increase in non-performing loans in 2022 and 2023, with their average ratio peaking at 39% in mid-2023 before declining to 31% in November 2024. Over 96% of NPLs were provisioned in late 2024. Martial law has paused some actions to recognise and address NPLs, and banks will be required to update their NPL assessments and resolution strategies once martial law ends. Ensuring the banking sectors’ stability and ability to finance the reconstruction will require anticipating and maintaining sufficient provisioning for the new NPLs that will be recognised once the restrictions of martial law are lifted.
Wide interest margins and high returns on their holdings of government bonds have supported bank profitability and capital ratios since 2022. Provisioning, which reached 12% of loan portfolios at the start of the full-scale war, has limited the capital losses from new non-performing loans. An increased corporate income tax rate of 50% was imposed on banks’ profits earned in 2023 and again in 2024, which reduced their average return on equity, although it remains high, near 30%. All but one of the 20 largest banks, representing 90% of banking assets, were assessed in 2024 to be adequately capitalised. Like other aspects of Ukraine’s prudential supervision arrangements, the approach to capital risk assessment is being progressively aligned with European standards.
Bank liquidity is high. Deposits rose from the start of the war, as uncapped guarantees of retail deposits contributed to households maintaining their savings (Figure 1.7, Panel C). Deposits were also supported by the defence force mobilisation, as personnel are paid directly into bank accounts, whereas before the war many may have been receiving part of their income in cash or were in low-paid work or unemployed. Corporate savings rose less strongly, with capital controls providing some support during the first year of the war. NBU adjusted reserve requirements in late 2024 with the effect of directing liquidity toward the primary government bond market. Banks’ exposure to the sovereign through government and municipal debt securities and NBU’s certificates of deposit now represents around 38% of the banking sector’s total assets. Credit has increased for businesses’ working capital and for loans in the 5-7-9 subsidised lending programme (Figure 1.7 Panel D). (Chapter 2 discusses structural challenges for expanding bank lending and developing non-bank financing).
Note: Panel A: OECD average is computed on latest available quarterly data apart from Japan and Italy for which frequency is biannual. Panel B: the graph shows a selection of OECD countries. Panel C: NPISH corresponds to non-profit institutions serving households (S.15) according to Institutional Sector Classification. Data correspond to deposits held with deposit-taking corporations (excluding National Bank of Ukraine). Panel D: data correspond to loans granted by deposit-taking corporations (excluding National Bank of Ukraine). Panel C & D: data are end of period balances.
Source: IMF, CEIC, National Bank of Ukraine (NBU).
A gradual recovery is projected to continue amidst the ongoing war
Under the assumption that the security situation and external support change little before the end of 2024, moderate growth is expected to continue into 2025, as defence spending and the ongoing reconstruction efforts continue to support activity and consumer spending rises as labour shortages propel further strong wage growth. Energy supply disruptions especially over the winter, are likely to weigh on industrial output and discourage further returns of emigrants. Somewhat less favorable growing conditions from the second half of 2024 than in recent years are likely to limit further gains in agricultural output and exports. The security situation and external support are assumed to change little before the end of 2026. Under this scenario, the recovery is likely to moderate further through 2025 and 2026, as energy shortages and damage to infrastructure and businesses continue and few displaced people return. Under this scenario, external support is expected to continue to finance the ongoing wide budget deficits, although lower in-kind military support is likely to lead to higher on-budget defence spending. Spending to rebuild energy supply capacity, housing and transport infrastructure, especially in the west of Ukraine, are expected to expand activity in construction and construction material manufacturing. Defence-related manufacturing is likely to continue to grow as capacity develops and public spending remains elevated. Together, these developments are likely to maintain inflation above the central bank’s 5% medium-term target (Table 1.1).
Once the security situation stabilises growth is projected to initially rebound, as displaced people return, and reconstruction accelerates. Growth is then expected to follow the potential rate, discussed below. This rate will depend on the security situation, external support and the pace and quality of reform implementation, which will help drive investment, the return and employment of displaced people, and improvements in productivity.
Note: GDP is measured at 2021 constant prices.
Source: OECD Economic Outlook database.
Exceptional uncertainty surrounds these projections. Maintaining external support will require maintaining effective macroeconomic management and the momentum in implementing structural reforms to improve the investment climate and public sector’s integrity. If financial and in-kind support are cut sooner, the budget and external balance would deteriorate, and, in turn, imperil the macroeconomic stability that has been a foundation of the private sector’s resilience. Reduced in-kind support risks substantially raising on-budget military spending, weakening public finances. Conversely, an improvement in the security situation sooner would limit further population loss and damage to the economy, and could lift growth strongly as reconstruction and recovery activities accelerate and as confidence improves and more displaced people return. Especially if accompanied by ongoing external support and increasing foreign investment, this could lead to strong demand pressures, particularly in the construction and the construction materials sectors. Significant adjustments in many sectors and fuller information on the economic situation are likely to follow the lifting of martial law restrictions, bringing new policy risks. For example, 15% of IT workers report they plan to go abroad when the borders are opened to conscription-aged men, which would create new challenges for that sector’s dynamism and export performance (IER, 2024[18]). In the longer term, other risks emerge for the outlook, some of which are outlined in Table 1.2.
Long-term growth prospects hinge on effective reform implementation
The economy’s evolution into the long-term is essential for assessing policy priorities and fiscal sustainability (discussed further below). Illustrative long-term growth scenarios through to 2050 are built using elements of the OECD long-term supply model described in Box 1.5. Table 1.3 summarises the scenarios’ assumptions. In both the baseline reform and the accelerated reform scenarios, GDP growth is initially boosted by reconstruction and the return of externally displaced persons before gradually declining due to weak demographic dynamics. The accelerated reform scenario maintains growth roughly one percentage point higher compared to the baseline, while the policy slippage scenario sees near-zero growth as weak demographics offset modest productivity gains. Over the next 25 years, GDP per capita is projected to grow annually by 2.4% in the baseline reform scenario, 3.3% in the accelerated reform scenario, and 1.1% in the policy slippage scenario, to rise by 81%, 130% and 29% respectively in each of these scenarios. This initial boost is weaker in the policy slippage scenario (Figure 1.8). The per capita growth projected in the accelerated reform scenario is comparable to that experienced by Hungary, Poland, and the Slovak Republic between 1995 and 2020, spurred by the accession and integration process into the European Union (3.2% annually).
Note: See Table 1.3. for assumptions underlying the simulations.
Source: Adapted from the OECD Long-term database.
The model projects potential output for countries up to 2060, using a Cobb-Douglas production function with physical capital (K), trend employment (N), and labour-augmenting technological progress (E):
with N trend employment (a function of the trend working age population and the employment rate), E labour efficiency, K the capital stock and α is the wage share (set at 0.67). The model can generate various scenarios, as the supply-side determinants are estimated as a functional form of structural and policy parameters, allowing for the simulation of different outcomes based on changes in these parameters.
Trend labour efficiency is modelled to converge progressively towards the US level of labour efficiency, with the speed of convergence depending on a survey-based rule of law indicator. At the end of the scenarios presented here for Ukraine, in 2050, that convergence is still underway.
The evolution of trend employment is driven by the size of the working-age population (ages 15-74), its age composition, and employment trends across different age and sex groups.
The evolution of the productive capital stock is driven by projections of public and private investment, excluding housing. The model imposes a stable long-run capital-to-output ratio.
Source: OECD Long-Term Database; UN World Population Prospects; Government Demographic Strategy 2040; and World Bank.
The budget deficit has widened sharply
The budget deficit widened sharply from the outset of the full-scale war with the sharp increase in defence spending and is expected to remain wide in 2025 (Figure 1.9, Panel A). Between 2015 and 2021, Ukraine’s total expenditure was gradually declining relative to GDP, reaching 33.9% of GDP in 2021. The needs of defence have since doubled total expenditure relative to GDP. Domestic revenues dropped in 2022 due to the disruption to activity and tax collections and due to various temporary policy measures, and then stabilised relative to GDP. Non-tax revenues from external grants and increased dividends from state-owned enterprises have supported revenues.
The full-scale war saw Ukraine’s defence spending surge to over 20% of GDP in 2022, and it is budgeted to reach 26% of GDP in 2025, while spending on public order tripled to 9% of GDP (Figure 1.9, Panel D). Personnel spending absorbs the bulk of these costs reaching 18% of GDP. Various military observers suggest that between 1 million and 1.1 million defence personnel were active in 2024 (official data are confidential), compared with 300 000 in 2020. Salaries are higher than many private sector jobs (Figure 1.10), and allowances for front-line and higher risk activities can raise these up to fourfold. Releasing a large share of these personnel, when security needs permit, and limiting the additional allowances will greatly reduce spending and ease labour scarcity for employers. In addition to personnel, purchases of materials such as ammunition reached 9% of GDP in 2024, and support for rapidly expanding defence industry has been significant but is confidential. These figures do not include the value of in-kind defence and humanitarian support, estimated to approach 18% of GDP over 2023 and 2024 (Figure 1.10). Plans announced by external partners suggest that in-kind support will decline substantially in 2025, notably for humanitarian assistance. When in-kind support falls short of expectations, on-budget spending tends to increase, as occurred in 2024-Q2. Despite these pressures, Ukraine has managed to protect spending on health and social protection relative to GDP, while education and economic development spending has declined only modestly, in part reflecting fewer students. Social spending has been bolstered by support for the 4.6 million internally displaced people.
The 2025 budget substantially increases spending on reconstruction, including for the Ministry of Communities and Territories Development (also referred to as the Ministry of Restoration) to rebuild infrastructure. It aims to reduce social, health care and education spending to 8.4% of GDP, approximately 1% of GDP lower than in 2024. Transfers to the pension fund will be cut, while the unemployment fund, which is in surplus, will contribute to the budget balance. Funding for support for low-income households has risen by less than inflation since 2021. The 2025 budget includes an untargeted UAH 1000 (USD 24) per person allowance for a prescribed list of daily living costs. Interest costs are rising with the higher debt stock, from near 3% of GDP in 2021 to 4% in 2024, despite the pause on servicing payments on official credits and the rescheduling of Eurobonds.
Domestic tax revenues remain below pre-2022 levels in real terms and relative to GDP (Figure 1.12, Panel C). They fell during the first months of the full-scale invasion, reflecting the disruption to collection processes and activity, as well as temporary tax relief and deferred taxation. From 2023, some corporate income tax rates were raised, exemptions cancelled, and collection processes tightened. Higher prices and robust consumer demand supported value added and excise taxes and VAT coverage was extended. A temporarily increased tax rate of 50% was imposed on banks’ 2023 corporate profits and extended to their 2024 profits. From 2025 the corporate profit tax rate is set at 25% for banks and other financial institutions (apart from insurers). Labour income tax and social contributions receipts have been lifted by the mobilised defence forces, whose declared incomes are often higher than their previous declared incomes. The increase in the military income tax surcharge from 1.5% to 5% from January 2025 will support revenues.
Concessional sources have become key for Ukraine’s public financing amidst the increased financing needs and heighted credit risk (Figure 1.10, Panel B). In the months following the full-scale invasion, agencies downgraded Ukraine’s sovereign credit rating sharply, for example with Moody’s cutting its rating from B3 in February 2022 to Ca a year later. Prior to the invasion, Ukraine had increased the share of domestic marketable debt in its total debt issuance, to average over 45% of between 2019 and 2021. Since 2022, the share of domestic debt issuance has dropped, reaching 30% of the outstanding amount in 2024. The share of financing from external concessional sources surged to average 76% of Ukraine's borrowing between February 2022 and November 2024, raising these loans’ share of total outstanding debt from 21% in 2021 to almost 60% at the end of 2024. The concessional terms reduce financing needs through lower interest costs and longer maturity. Still, the rise in the share of foreign currency-denominated debt exposes Ukraine to significant foreign exchange risk. Official creditors agreed to pause debt service payments until the end of March 2027, when claims are likely to be restructured (Group of Creditors of Ukraine, 2024[22]).
Note: Panel A: shaded area indicates OECD projections. Panels B & C: "NBU funds transfers" category is in accordance with the Law on the National Bank of Ukraine. Panel C: "external budget support grants" category includes official transfers from the European Union, foreign governments, international organizations, donor institutions. Panel D: "other" category includes environmental protection and economic activity; projections (shaded area) are KSE calculations from the draft Budget 2025 available here. GDP deflator figures for 2024 and 2025 are OECD calculations.
Source: OECD Economic Outlook 116 database; OECD Tax Revenue (database), IMF, World Bank, World Development Indicators (WDI), Ministry of Finance of Ukraine, National Bank of Ukraine, and Kyiv School of Economics.
The share of international marketable debt has declined with no new issuance after February 2022 and with the restructuring of existing Eurobonds. In August 2024, creditors agreed to convert Eurobonds with USD 20.5 billion of outstanding principal into bonds worth USD 15.2 billion in principle, no principal payment until 2029 and reduced interest payments. Other restructuring negotiations are underway, notably, regarding outstanding GDP-linked warrants valued at USD 2.6 billion, but which potentially pay holders 15% of any increase in GDP above 3% annual growth in real terms up to the warrants’ expiry in 2041. These were issued following debt restructuring in 2015. The goal of the negotiations is to ensure fair and equitable treatment of these warrants compared with other debt. This will also entail renegotiating commercial loans and government guaranteed debt. For example, the state railway operator Ukrzaliznytsia has USD 1.05 billion in outstanding Eurobonds which it is seeking to restructure after suspending interest payments. Ensuring equivalent restructuring of Ukraine’s different external debts to substantially extend maturities and reduce interest costs is key to restoring debt and fiscal sustainability.
Note: Panel A: total bilateral aid commitments to Ukraine in EUR billion with traceable commitment months over time between January 2022 and December 31, 2024. Military aid includes financial assistance tied to military purposes. Panel B: data are compiled according to the results from the state statistical observation “Survey of enterprises on issues concerning statistics” which covers legal persons and detached units of legal persons with 10 and more employees. Average monthly wages for selected sectors correspond to the arithmetic average over 2024 quarters. Transport category corresponds to the average of transportation and warehousing, postal and courier activities, land transport and via pipelines, water and air transport. Information has been compiled based on reports submitted by enterprises and additional estimates of indicators and may be revised by source. Financial support of militaries mobilised in the Ukrainian Armed Forces does not include additional allowances which can vary from 30,000UAH to 100,000UAH according to their participation in hostilities.
Source: Kiel Institute for the World Economy, State Statistics Service of Ukraine (SSSU), Ukraine Ministry of Defence, State Budget of Ukraine.
Achieving the medium-term fiscal objective will require continued external support
The government aims to achieve a primary budget surplus between 0.5% and 1.5% of GDP in the medium-term after the end of martial law. Consolidating from primary deficits projected to continue near 15% of GDP through 2026 will be challenging, but will be essential for achieving sustainable public debt. Reducing government financing needs and the supply of government bonds will encourage banks to instead finance private investment and operations.
The consolidation will require cutting public spending. Returning defence spending from the 25% of GDP budgeted for 2025 to more typical levels will enable much of the consolidation. Across OECD countries defence spending averaged 1.5% of GDP in 2022, with Israel spending the highest share, at 4.7% of GDP, and these shares have since risen and are budgeted to rise further in coming years. At the same time, spending pressures will be heightened for reconstruction and to support demobilised personnel and internally and externally displaced populations to reskill, rehouse and reintegrate into the labour market and society. Physical reconstruction needs up to the end of 2023 were estimated at USD 486 billion (World Bank, Government of Ukraine and European Union and the United Nations, 2024[23]). The government aims to achieve this reconstruction over one decade, implying USD 32 billion of additional construction activity or near 15% of 2027 expected GDP annually. The pace of public spending is likely to rise as spending capacity develops. The private sector may provide as much as one-third of the public infrastructure reconstruction (World Bank Group, 2023[24]), and the recommendations discussed in this Survey would support the private sector’s role.
Continued external grants will remain central to achieving the fiscal consolidation. This Survey includes recommendations to support the revenue base and raise the revenue share, such as improving VAT coverage and compliance, narrowing the coverage of presumptive taxes and improving tax administration collections, alongside several recommendations with a fiscal cost. Overall, these recommendations would improve the budget balance by about 3% of GDP (Table 1.4). Accounting for normalisation of defence spending, likely public reconstruction spending, and additional revenues leaves a gap of as much as 5% of GDP with the medium-term fiscal objective. Continued strong international support will be essential to closing this gap and achieving a sustainable reconstruction. Box 1.6 describes the funds provided to Ukraine in 2024-2027 through the Extraordinary Revenue Acceleration Loan Initiative and the role of the frozen Russian assets. Building on the lessons of the post-World War II Marshall Plan in western Europe and more recent experience, beyond the financial value of this support, it will be most effective at raising private investment, productivity and incomes if it helps drive the types of structural reforms discussed through this Survey (De Long and Eichengreen, 1991[25]).
One of the principal issues pertaining to Ukraine’s financing needs since February 2022 has been the fate of the roughly USD 325 billion of Russian assets abroad that were frozen following the start of the full-scale invasion. Proposals for treatment of the assets ranged from calls for outright confiscation to plans to use tax and other income generated by the assets to support Ukraine. Initial steps to use the tax revenues from these assets to benefit Ukraine have shifted to using the income they generate.
In October 2024, the G7 agreed to use the interest generated by the assets (around USD 3 billion annually) to fund USD 50 billion (27% of Ukraine’s 2024 GDP), which will be disbursed between 1 December 2024 and 31 December 2027. The EU has committed to providing EUR 18.1 billion (USD 19.5 billion) via ‘Macro-Financial Assistance’ loans, and the United Kingdom to contributing GBP 2.7 billion (USD 2.9 billion). The United States committed to providing USD 20 billion, Canada CAD 5 billion (USD 3.7 billion) and Japan JPY 471.9 billion (USD 3.1 billion) via the World Bank’s Financial Intermediary Fund.
The funds are in the form of a loan to Ukraine, serviced and repaid by future flows of extraordinary revenues stemming from the immobilisation of Russian sovereign assets. The loan proceeds will be disbursed through multiple channels to support Ukraine’s budgetary, military and reconstruction assistance. It will be conditional on Ukraine upholding effective democratic mechanisms, respecting human rights, and on meeting the policy conditions, transparency and accountability requirements laid out in the IMF programmes and the Ukraine Facility. A second recourse clause stipulates that if there is a peace agreement, Russia pays for the damages it has caused and outstanding balances of the facility cannot be covered by the immobilised Russian sovereign assets, Ukraine would repay the remaining amounts. The long-term future of the frozen Russian assets continues to be debated. While Ukraine and some of its international partners advocate outright confiscation, this view is contested.
These amounts are separate from the EU’s Ukraine Facility, which runs from 1 March 2024 through 2027 (see also the mechanisms discussed in Box 2.5). It provides up to EUR 50 billion of direct and indirect financial support, including EUR 17 billion in grants and EUR 33 billion in loans. EUR 38.3 billion is allocated to support macro-fiscal stability, linked to reforms including for budget oversight and public financial management, and sectoral and structural reforms and investments that will support accession to the EU. The Facility also allocates EUR 9.3 billion to attract and mobilise public and private investment to support Ukraine’s recovery and reconstruction.
Source: (Ministry of Foreign Affairs of Japan, 2024[26]) (European Commission, 2025[27]).
Note: Negative values indicate contributions to the budget balance, i.e., reduction (increase) in the budget deficit (surplus). The value of revenue policy measures is based on estimates in the National Revenue Strategy, with the exception of the estimated revenue generated through focusing the coverage of ‘simplified’ tax arrangements.
Source: (Ministry of Finance, 2023[28]); OECD estimates.
Better coordinating and managing external support
The current aid management system is fragmented and does not provide for integrated management of flows, or for them to be well integrated into the budget and policy process. This limits and complicates coordination, monitoring, reporting and accountability, and adds to the hurdles for disbursing support (OECD, 2024[29]). In 2023, net Official Development Assistance to Ukraine reached USD 39 billion, the largest amount received by a single country in a single year on record (OECD, 2024[29]). Among the management challenges, the government currently does not have a centralised body and data collection system to account for development and humanitarian aid flows. Donor platforms require the government to regularly report on the use of support, which can be cumbersome. These weaknesses also compromise donors’ ability to coordinate with the government.
The urgent demands of responding to the full-scale invasion has slowed establishment of a full-fledged regulatory and information system for aid flows capable of managing the volumes of assistance Ukraine is now receiving. Effective aid management can strengthen broader public resource allocation and the efficiency and responsiveness of public policy. Donor coordination mechanisms such as the Ukraine Donor Platform and the Single Project Pipeline for public investment projects are being developed with the goal of aligning priority public investment projects with international project preparation standards. At the same time, external support should complement domestic resources. To improve coordination, Ukraine can consider formally designating a lead entity to coordinate aid data collection and management, integrating this information into improving financial management information systems, and integrating these into systems accessible across the government including subnational bodies. The Ministry of Finance could take this role given its central function in public finance management and existing financial management capacities.
Improving spending effectiveness
The reconstruction and recovery and fiscal consolidation will entail large shifts in public expenditure. Detailed reviews of public expenditure can help identify areas where ineffective spending can be cut and areas that would benefit from increased spendings. Used well, spending reviews can help budget processes break from incremental reallocations to achieve larger shifts in public resources, as they have in OECD countries undergoing fiscal adjustment, such as Italy in the early 2010s, as well as Ireland and the United Kingdom (Schick, 2013[30]) (OECD, 2024[31]). The Ministry of Finance has developed requirements for conducting public expenditure reviews, and regular spending reviews are among the measures to improve public resource allocation envisaged in the Ukraine Plan. As a first step, integrating spending reviews into the regular budget process and documents would develop their role. Ukraine could follow the example of several OECD countries, such as Lithuania and the Netherlands, in developing a dedicated unit in a central agency such as the Ministry of Finance to coordinate the reviews and develop line ministries’ capacity and collaboration in spending reviews. This can help improve the quality of analysis and improve ministries’ willingness to implement savings (OECD, 2008[32]). Including pertinent performance information in spending reviews would improve the quality and transparency of decisions over line ministries’ spending proposals and budget allocations. Tracking and reporting on the implementation of spending reviews’ recommendations would improve their salience.
Preparing for the public investment needs of the reconstruction
Low public investment has reduced Ukraine’s real public capital stock, with the stock falling gradually since 2009, and faster with the destruction of the full-scale invasion (Figure 1.11). Direct damage to public buildings and infrastructure had reached USD 152 billion by December 2023 (World Bank, Government of Ukraine, European Union, United Nations, 2023[2]) (discussed further in Chapter 2), and estimated total recovery and reconstruction needs reach USD 486 billion. Reconstruction will require mobilising financing, large gains in public and private expenditure and investment capacity, and substantial growth in the construction sector’s capacity compared with the recent past.
Note: Panel A data are constructed based on general government investment flows. Panel A & B: graphs show a selection of OECD countries.
Source: IMF; OECD Economic Outlook: Statistics and Projections database.
The challenges to realising the increased investment are considerable. Disbursement rates for public investment have been low in Ukraine for many years – for example in 2019, before the COVID-19 pandemic disrupted activities, public investment spending was 44% below budget and spending financed by international financial institutions was 66% below budget. This has continued despite the abrogation of many processes by martial law. In 2023 the government identified immediate recovery and reconstruction priorities totalling USD 14.1 billion, and funding for 84% of this amount was identified. However, only 61% of this amount (USD 7.2 billion) was disbursed (World Bank, Government of Ukraine, European Union, United Nations, 2023[2]). This performance changed little in 2024.
Improving public investment management (PIM) processes will be central to raising disbursement rates and improving the efficiency of public spending. PIM capacity and processes were strengthened in the late 2010s, and now include processes for developing projects, preliminary screening, appraisal, and competition with other investment projects. Still these processes could be improved in the majority of the 23 indicators included in the 2022 Public Investment Management Diagnostic Assessment (World Bank, 2022[33]). Most projects have circumvented these processes in recent years – 65% in 2021 – by avoiding the designation of “State Investment Projects”. Further, many projects are funded despite being appraised negatively. Assessments of public investment also find that weak medium- and long-term planning and integration into the budget process contribute to project delays and cost overruns. Better integrating projects into medium-term budgeting would help ensure that funds are available to maintain projects once they are completed, improving their social returns.
In 2024 the government adopted a PIM roadmap and action plan to help scale up capacity. It aims to tighten the definition of State Investment Projects to limit the potential for agencies to avoid public investment management procedures. It more clearly defines the roles and responsibilities of the main stakeholders in PIM and takes a more comprehensive approach to public investment cycle management, beginning with the strategic and medium-term planning and budgeting of public investment, then the appraisal and selection of public investment projects, their implementation, and finally their audit and assessment. It applies to all levels of government, and addresses capacity building needs and digitalising the process. Under the roadmap, new legislation and regulations have been introduced, the Strategic Investment Council has been established, priority investment projects for 2025 identified, and the Budget Code amended to better integrate public investment projects into the budget process including for medium-term planning. The Ministry of Finance now has a gatekeeper role to verify and confirm that all projects financed from the budget have been appraised and selected in line with the established procedures. The roadmap foresees implementing and assessing the new system over 2026 to 2028. Sticking to these ambitions can help strengthen and deepen public investment capacity in Ukraine, ensuring that the reconstruction can accelerate as soon as conditions permit.
Weaknesses in public procurement are among the challenges for public investment. Again, Ukraine made important improvements in its public procurement processes prior to the war. The Prozorro (‘transparency’) procurement digital platform, established in 2016, is well regarded for its user-friendliness and integration into commercial markets (Yukins and Kelman, 2022[34]). Under martial law, it was rapidly adapted with simplified processes to enable faster procurement. Still, the share of procurement taking place outside of Prozorro has risen, while procurement taking place via Prozorro has also become less competitive with 35% of tenders receiving only one bid and the average number of bidders across the platform falling from 2.06 to 1.86 in 2022, before improving to 2.38 in 2024. The percentage of tenders with one bid remains high, near 40% in 2024.
Prozorro has been upgraded to be able to manage more complex procurements and to accommodate procurement funded directly by donors such as the World Bank. The system can be adapted to award a contract not only by price, but by other more qualitative criteria such as technical merit and value for money. The government launched a two-year Strategy for Reforming the Public Procurement System in February 2024, aimed to align public procurement with EU standards and strengthen the overall performance and transparency of procurement, by, for example, increasing the role of civil society in procurement development and by developing the capacity of procurement officials and organisations. Reinstating procurement controls and transparency requirements will be important for enhancing value-for-money and boosting the competitiveness of contract awards. Capacity building for procurement entities and their personnel is being developed and will enable contract awards to be based on broader value-for-money rather than simply the lowest price criterion. The government plans to introduce an ethical code for procurement bodies, and to develop procurement bodies’ ability to analyse the effectiveness of their approach to procurement, which would be welcome developments. Ukraine approved in 2023 a specialised procurement profession. It may wish to follow the example of OECD countries such as Great Britain, New Zealand or Poland in ensuring that these professionals are subject to standards and arrangements to protect the integrity of their procurement decisions (OECD, 2023[35]).
The scale of the reconstruction needs adds to the importance of improving value-for-money in procuring construction materials. Materials typically represent around 65% of total construction costs but the process for estimating these costs lacks transparency or comparability, leading to wide variability in prices and scope for irregularities (Ivanova, 2024[36]). The lack of common material description standard impedes comparing costs. Aligning these with EU standards would allow for projects’ design and costs to be compared with projects in the EU. A law passed in September 2024 requires cost estimates for construction materials to be disclosed in the Prozorro system is a welcome step if contract specification is aligned and consistent. Further steps need to be taken, including adopting international construction materials measurement methods and classification systems, and revising the national cost estimation methodology to bring it into line with, for example, EU standards.
Strengthening internal audit can also contribute to spending quality. Ukraine has internal audit processes, aligned with international standards, implemented across public institutions. But these processes’ independence is limited, and they can lack resources and sufficiently well-trained personnel. Auditors’ lack of direct and unrestricted access to senior management and political staff, and the coordination challenges with the State Audit Service can impede their function. Strengthening the professional cadre of internal auditors, for example by implementing certification programmes for internal auditors, can bolster their role in ensuring a culture of probity and effectiveness in the public sector.
Supporting the effectiveness of the public sector workforce
The public sector has continued to deliver key functions and goods and services through the full-scale invasion. 89% of teachers and health workers have been paid on time, 91% of health centres across the country have remained open and at least 89% of 6-to-18-year-olds are enrolled in school. Most pensions and social payments have been paid (World Bank, 2024[37]) and critical functions of government continued to operate. The rapid digitalisation of the public sector since the mid-2010s has been central to this resilience (Box 1.7). Nonetheless, from a longer-term perspective, Ukraine’s government effectiveness lags behind its peers (Figure 1.12, Panel B). Continuing to improve the public sector’s effectiveness would raise the value and efficiency of public spending and support the reconstruction and recovery (OECD, 2023[38]).
Raising the capacity and performance of Ukraine’s civil service would contribute to public service effectiveness. Overall spending on the public service relative to GDP was near the OECD average prior to the full-scale invasion (Figure 1.12, Panel A). It is likely to have since fallen given the loss of staff through spending cuts, mobilisation and emigration. A high-performing civil service needs to be able to attract and retain talented personnel which requires a competitive remuneration package, an appointment process that is transparent and merit-based, fair terms and conditions of employment, and a system that promotes continuous professional development. Some progress in these areas was made prior to the war including an overhaul of the professional development system and the establishment of the Centre for Evaluating Applicants for Public Service Positions. Continuing efforts to strengthen the performance and integrity of the public sector will be important.
Low and fragmented pay has contributed to difficulties in filling vacancies, as well as a consistently high turnover rate, especially in subnational governments. Pay freezes and training budget cuts since the full-scale invasion have added to challenges. Large differences in pay across some institutions for similar work can be explained partly by the absence of a uniform classification system for positions based on responsibility and complexity, and considerable managerial discretion in the payment of bonuses. Reforms are before parliament to classify a fixed salary for civil service positions and eliminate unjustified pay, limit the number of employees in state bodies, and introduce a grading system. Position classification started in October 2023 and a salary system based on the classification was introduced in 2024 for a transitional period. At the same time, there are still exceptions to the unified salary system, which creates differences in salary for similar work in different government agencies. Implementing the draft law would ensure these reforms become permanent, and lead to a comprehensive review of the salary structure, towards supporting the transparency and competitiveness of salaries while protecting budget stability.
Note: Panel A: the graph shows a selection of OECD countries. Panel B: Government effectiveness captures perceptions of the quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government's commitment to such policies. The score is measured on a scale from approximately -2.5 to 2.5. Higher values correspond to better governance. More details can be found here.
Source: IMF Government Finance Statistics, World Bank, Worldwide Governance Indicators.
Recruitment, promotion and dismissal processes have contributed to higher staff turnover. Political interference in appointments and dismissals of senior civil servants is a long-standing issue (OECD, 2024[39]). Wartime conditions further compounded these problems. The competitive and merit-based recruitment process set out in the Civil Service Law was suspended by martial law, preventing the competitive selection of candidates. Staff recruited on this basis cannot be transferred to other positions in the civil service and their contracts are terminated 12 months after martial law is lifted. This has the potential to result in widespread vacancies in the civil service once the war ends. Promotions under martial law have also been affected, as prior dismissal from the civil service is a condition for temporary appointment to a higher position. This acts as a major disincentive for civil servants appointed previously under the normal procedure and impedes career progression. Implementing as soon as conditions permit merit-based recruitment and promotions, and the Unified Civil Service Vacancies Portal would improve transparency. Dedicated processes that ensure the professionalism of senior civil service recruitment procedures, while allowing ministers to select among short-listed positions, would improve the integrity of these roles (Gerson, 2020[40]). Strengthening sub-national governments’ role in the recovery.
Strengthening subnational governments’ role and financial and organisational capacity can help accelerate the reconstruction, given the scale of the needs, the large demands on the central government’s capacity, and subnational governments’ scope to adapt to local conditions and to feedback and accountability pressures. Across regions and municipalities, needs vary greatly, underscoring the need for a ‘place-based approach’ to post-war recovery and reconstruction (OECD, 2022[41]). Half of all recovery and reconstruction needs are concentrated in the frontline regions (discussed further in Chapter 2) (Marsh Mclennan, 2023[42]), while priorities differ for municipalities away from the frontlines, for example to support internally displaced populations.
The decentralisation reforms which began in 2014 led to important gains in the role and capacity notably of local governments (Box 1.8). These reforms enabled local governments to play a key role in Ukraine’s resilience since 2022, especially during the most challenging periods of 2022 when sub-national governments adapted essential social services and provided emergency support and resources to citizens (Arends et al., 2023[43]). Some measures taken under martial law have recentralised some decision making and limited local governments’ resources, and approximately 15% of local governments in areas under the control of the Ukrainian government are controlled by military administrations (Darkovich and Savisko, 2024[44]). Once martial law restrictions can be lifted, further developing the role and capacity of local governments in delivering public goods and services can support the quality of Ukraine’s recovery. For example, alongside decentralising further, Ukraine could encourage some amalgamations in larger conurbations where municipalities are fragmented by renewing the incentives that encouraged the wave of amalgamations between 2015 and 2020.
Ukraine has rapidly digitalised public services over the past decade. It was ranked 5th globally in the Online Services component of the 2024 UN E-governance development index, up from 102 in 2017. Patchy infrastructure and human capital have not held back this progress.
Public service digitalisation was accelerated first by strong political leadership then by the urgency of adapting to the war. It was operationalised initially by a community-driven and voluntary network, then by dedicated public agencies, first the independent Agency for E-government, later by the Ministry of Digital Transformation, which was given significant authority and resources.
The public digitalisation started as an effort to improve public sector integrity and reduce corruption risks. It began with the requirement that all public employees declare their assets online, and by the introduction of the Prozorro e-procurement platform. This expanded into digitalisation of public registries and then became an effort to digitally transform the broader public sector and society, prioritising other areas where corruption risks were particularly high, such as urban planning. Today, the Diia (‘state and me’) application is the central access point for over 21 million citizens and businesses to access e-government services. It is built on an interoperable data exchange system. Ukraine is now sharing aspects of the system with several OECD country governments.
Transformation of processes has accompanied public sector digitalisation across the public sector. Processes have been simplified, avoiding the intervention of administrators, or for users to seek the help of intermediaries such as lawyers. The role of paper documents has been curtailed, which reduces corruption risks and has been especially valuable amidst the destruction of physical records by Russian attacks. Estimates suggest significant efficiency and anti-corruption savings across the public sector, potentially as high as 0.8% of GDP in 2022.
Public digital capacities are supporting private digital industries. They have been spun into the defence digital cluster, Brave1. The government is now helping private businesses use and develop AI technologies. The public digitalisation agenda is also leading to more digital training activities throughout the education system.
The main challenges are cybersecurity, financing and inclusiveness. Ukraine’s international partners have helped make up for scarce national financing since the full-scale invasion. To support all citizens in being able to access digital public services, especially those with low digital skills, interfaces have been tested and audited for usability, and training provided.
Between 2015 and 2020, Ukraine merged over 10 000 local councils into 1 469 municipalities. This consolidation was combined with and helped enable a devolution in powers, increased local government responsibility for public service delivery and fiscal autonomy.
Mergers of municipal governments were voluntary at first. They occurred through a phased approach from 2015 to 2020. Financial incentives were key to this success. Leading this was the Local Infrastructure Subvention, which was created in 2016, with only amalgamated municipalities eligible for funds. The fund created incentives to merge proactively, as less funds were available per municipality as more municipalities merged. (The State Fund for Regional Development was eliminated in 2020 as COVID-19 cut fiscal space). At the same time, municipalities gained greater autonomy. For example, many of the responsibilities for public services such as education, healthcare, and administrative services, were transferred from the rayon (district) level to newly amalgamated municipalities or were scaled up to the oblast (region). While the reforms led to many voluntary municipal mergers, a minority of municipalities did not elect to do so. This prompted a final round of mandatory mergers in 2020.
Following the mergers and with increased responsibilities, subnational expenditure rose in real terms and a larger proportion of capital expenditure took place at the subnational level. Capacity to carry out administrative, planning and investment tasks increased, and public service delivery and inter-governmental relations improved. These benefits were particularly evident in rural areas. Prior to the imposition of martial law following the full-scale invasion, benefits were also greater in areas which strengthened participatory approaches to local governance through civil society engagement in municipal planning.
Note: Panel A: ‘Peers’ does not include Türkiye due to lack of data. Panel A & B: graphs show a selection of OECD countries.
Source: OECD Regions and Cities (database), IMF World Economic Outlook (database).
However, decentralisation has widened disparities in capacity between localities, particularly between some rural areas and higher-capacity urban municipalities. More populated municipalities tend to be more efficient at building and maintaining physical infrastructure. Municipalities that raise a higher share of their revenues through local taxes perform better. Meanwhile, a higher proportion of rural municipalities than urban municipalities reported insufficient capacity to identify investment needs and develop proposals, limiting their ability to access regional development funds and widening inequality between municipalities.
Boosting investment by subnational governments will require further building their capacity to design, implement and evaluate investment projects. While substantial, capital expenditure by subnational governments before the full-scale invasion was generally spread over many small-scale projects funded through a wide array of different grant schemes, central government transfers and other sources. There were few incentives to promote inter-municipal cooperation to develop larger scale, more efficient, joint investment projects with higher development impact. Municipalities’ capacity to carry out strategic planning, and manage public investment and expenditure was limited in many areas, with rural areas particularly suffering from weaknesses – for example, 80% of urban municipalities reported being able to design development strategies compared with 67% of rural municipalities (OECD, 2022[41]). The full-scale invasion has aggravated this. In March 2024, 40 000 civil service positions, one quarter of the total, were vacant and mayors reported acute problems recruiting staff. Further, the authority to raise finance has been extended from larger to mid-sized and smaller municipalities, which will require developing specialised financial and risk management skills.
To address these challenges, grouping or consolidating funding sources could help to reduce bureaucracy and the fragmentation of projects. The State Fund for Regional Development will be reactivated in 2025, after being frozen during the COVID-19 period. It will help fund local and regional governments’ reconstruction and development projects, and the design of projects supported by the Fund could better support such cooperation. Incentivising inter-municipal cooperation – by, for example, providing additional resources to municipalities that develop joint projects – could lead to more effective use of resources, allowing municipalities to pool limited financial and human resources, reduce the overall number of projects, and achieve economies of scale. It could also help to promote peer-to-peer learning between municipalities. Building on the robust civil society engagement in Ukraine to identify local priorities, and support the design, implementation, and monitoring of recovery projects will help ensure the most urgent needs of local communities are being met while promoting accountability and transparency.
Establishing a robust municipal performance measurement framework could also help to identify where progress has been made, where gaps remain, and what sort of capacity building support municipalities need. It would also serve as an important accountability mechanism. Such a framework requires investing in the capacity of municipalities and higher levels of government to generate, collect and analyse territorially disaggregated data on a wide range of socio-economic, demographic, fiscal, public service delivery and governance indicators on a regular basis, and ensure this information is widely available. Public access to this information can also help to reduce corruption by allowing civil society to track recovery funds and projects. Supporting local government officials through training, technical assistance, and promoting cooperation and coordination among subnational governments can help fill performance gaps (Allain-Dupré, Chatry and Phung, 2020[47]).
Into the longer term, developing subnational governments’ ability to raise and manage their own sources of funding will be part of deepening their financial and organisation capacity and responsiveness to local needs. A recurrent property tax based on properties’ improved values can be part of this mix, once the property market has stabilised and robust value information is available (discussed below). This would complement other local taxes and user charges (Allain-Dupré et al., 2023[48]).
Supporting public revenues while limiting the tax burden on the economy
Buttressing public revenues is central to Ukraine’s defence, recovery and reconstruction. Most of the general budget support provided by international partners cannot be used for military expenditure, implying that Ukraine must finance its high defence spending through domestic resources. Even when defence needs abate, significant revenues will be required to achieve the primary budget surpluses expected under the medium-term fiscal strategy and to fund the human and physical reconstruction and recovery needs.
The policy challenge will be to bolster domestic revenues while limiting their drag on investment, employment and activity, and minimising distortions or incentives for informal or undeclared activity. Broadening the tax base, limiting distortions and improving the administration is central. Tax revenues are high as a share of GDP relative to other countries near Ukraine’s income level and the current tax structure and payment processes detract from the business environment (discussed in Chapter 2). Still, tax revenue relative to GDP has declined slightly in recent years, including since 2022, in part reflecting the erosion of the tax base following the war (Figure 1.14). Ukraine has accelerated reforms of revenue policy and administration, led by the National Revenue Strategy and the Ukraine Plan (Ministry of Finance, 2023[28]; Government of Ukraine, 2024[49]). These aim to improve revenue-raising capacity, align the country’s tax and customs policies and administrative processes with EU standards, raise tax compliance by reinforcing the tax and customs administrations and improve their integrity, within a horizon of 2030. In the longer term, once budget balances have reached the medium-term target and public finances are on a sustainable path, it will be possible to consider reducing the tax burden on the economy.
Note: Panel A: GDP per capita values are 2017 USD constant PPPs. Panel B: Domestic revenues do not include official financial transfers from the European Union, foreign governments, international organisations, and donor institutions.
Source: IMF World Economic Outlook (database), Ukraine Ministry of Finance, OECD Global Revenue Statistics (database), Ministry of Finance, Centre for Economic Strategy (CES), and State Statistics Service of Ukraine (SSSU).
Strengthening indirect tax collection
Indirect taxes are an important source of revenue, but could be further expanded including in the near-term. Since the full-scale invasion higher nominal consumption due to increasing prices, the ending of certain temporary VAT exemptions on imports, stricter treatment of refunds of domestic VAT payments, and the increase in some excise rates have supported indirect tax revenues. Indirect taxes, VAT especially, have the advantages of collecting revenues from activity not declared for income tax purposes, and imposing a lower cost on activity than income taxes (Vlachaki, 2015[50]) (Akgun, Bartolini and Cournède, 2017[51]; Hanappi, Millot and Turban, 2023[52]). VAT collections before 2022 are estimated to have been half of what would be expected based on retail trade (Zablotskyy and Djankov, 2023[53]).
Significant revenues could be generated by increasing VAT collections through lower exemptions. There is scope to limit reduced rates and align these with the mandate. A 14% rate applies to the supply and importation of certain agricultural products, and a 7% rate to the supply and importation of medicines, medical devices and medical equipment, and supply of transport, culture and tourism services. The 0% rate applies to military and security-related items. The Ministry of Finance estimates that reduced rates cost UAH 76.5 billion (1.2% of GDP) in 2023 (Ministry of Finance, 2023[28]). Ukraine’s National Revenue Strategy foresees reducing VAT exemptions to align them with European directives, and to reform the VAT registration processes, alongside the reforms to the ‘simplified’ tax regimes discussed below. Limiting the eligibility to the ‘simplified’ tax regime which exempts certain businesses from registering for VAT would improve coverage and reduce the incentive for businesses to register multiple, small entities. Advancing measures to bring a larger share of businesses into the standard VAT system can efficiently increase revenues. Finally, an increase in the standard VAT rate to, for example, at least that of Ukraine’s peers could increase VAT revenue, even if a higher rate increases avoidance incentives (Figure 1.15).
Standard VAT rate, %, 2024
Note: Standard VAT rates are rates applicable on 1 January 2024.
Source: OECD Tax (database).
Excise taxes generate greater revenues relative to GDP or relative to other tax sources than in most OECD countries. Ukraine is progressively aligning these with EU directives, and pursuing this will support revenues as well as the health benefits of, for example, higher alcohol and cigarette prices. Higher excise rates will make effective supervision of the trade of excise goods even more important. In addition to weakening the rule of law and limiting public revenues, undeclared or illegal production or trade can generate risks to health or other damages, for example from counterfeit products (Shvabii et al., 2021[54]). The National Revenue Strategy envisages implementing electronic and automated systems to better control this trade, as part of broader reform plans to improve the integrity of public institutions. Significant efforts are underway by the government and its international partners to reform the State Customs Service, which has suffered deep and long-standing integrity and operational issues, and pursuing these complements the measures discussed in this Survey to support domestic tax revenues.
Better targeting ‘simplified’ tax arrangements
Ukraine’s multiple ‘simplified’ (presumptive) tax regime for businesses is intended to reduce compliance costs and support small businesses, but they have the unintended consequence of weakening the overall tax system and encouraging businesses to register multiple firms that operate within the simplified system’s eligibility thresholds and dependent employees to register as self-employed. To use the ‘simplified’ tax regime, individual entrepreneurs and businesses choose to be classified into one of four groups, based on their maximum income thresholds, types of economic activity, and number of employees (Bulman, 2025, forthcoming[55]; OECD CTPA, 2025, forthcoming[56]). This group determines whether they are taxed based either on the subsistence or the minimum wage rate, the business’s reported turnover or its land assets. They are exempted from the standard corporate income tax regime, transfer pricing rules, and land taxes. VAT arrangements and reporting requirements are simplified, reducing compliance costs relative to businesses in the conventional tax system. The exemption of most agricultural businesses from the standard corporate income tax is notable given the sector’s importance. Eligibility for ‘simplified’ tax arrangements is wider than in most OECD countries. For example, in 2022, the USD 207 000 maximum turnover to be eligible for Ukraine’s simplified scheme was the fifth highest of the schemes in the 41 middle income and emerging economies discussed in Wen (2023[57]). The maximum turnover under which businesses are eligible for these schemes is many times greater than the minimum turnover before businesses are required to register for VAT collection. Almost 1.8 million taxpayers opted for the ‘simplified’ regimes in 2023, 14.6% more than in 2017 (Ministry of Finance, 2023[28]), with the effect of concentrating corporate and personal income taxpayers into larger enterprises and state-owned enterprises.
The National Revenue Strategy lays out a three-year path of comprehensive reforms to curtail the role of ‘simplified’ arrangements from 2025 (Ministry of Finance, 2023[28]). The range of activities eligible for the presumptive tax regime will be reduced and VAT registration thresholds will be enforced. Exemptions on record keeping will be abolished, while accounting rules will be simplified. Importantly, the reforms include agricultural businesses operating as legal entities, and to progress many businesses into the standard tax system. These reforms are welcome, and reflect the approach taken in many OECD countries (Mas-Montserrat et al., 2023[58]). They are urgent for broadening the tax base, improving the business climate and reducing distortions in the labour market. However, the Strategy makes their introduction contingent on completing improvements to tax collection systems and in taxpayers’ confidence in tax authorities (discussed further in Chapter 2). Rather than waiting for taxpayers’ confidence in authorities to improve, bringing more underdeclared businesses into the standard tax system may help accelerate improvements in how tax collection authorities operate, for example, by encouraging collection authorities to shift resources to supporting taxpayer compliance rather than to punitive enforcement. The likely benefits for the revenue base and the business environment of reforming the ‘simplified’ tax regime argue for pursuing and, as possible given compliance challenges, hastening these reforms, while accounting for the transition needs for both taxpayers and collection authorities.
Regarding the standard corporate income tax regime, the standard statutory corporate income tax rate of 18% is slightly below the average of OECD countries. Calculating forward-looking effective tax rates would allow Ukraine’s corporate tax arrangements to be assessed and compared with OECD countries and allow for a deeper analysis of how the corporate tax burden varies across sectors and types of firms (Celani, Dressler and Hanappi, 2022[59]). Reduced or concessional rates are also in place for certain sectors, including several which represent significant shares of Ukraine’s economic activity. Some presumptive and concessional tax measures have been reduced since 2014, such as for agricultural firms. Other measures have been introduced or expanded, such as a special taxation regime for IT sector firms (‘Diia City’) launched in 2022. In general, differential tax rates distort economic decisions and can engender inefficiencies. A comprehensive assessment of tax expenditures, including the revenue foregone, the nature of their beneficiaries and their effects, can inform reforms. Ukraine could follow many OECD countries by including updated estimates of the costs and benefits of these incentives in its annual budget documents.
Achieving the medium-term fiscal targets will be central to debt sustainability
The authorities’ primary budget surplus target is 0.5% to 1.5% of GDP and to public debt declining to 65% of GDP in the medium-term, once the security situation has stabilised and martial law is lifted. This target is intended to incorporate continued elevated security spending, and the infrastructure and social investment for recovery and reconstruction. Compared with the average primary budget balance between 2006 and 2021 -1% of GDP this would be a moderate consolidation. OECD countries provide a number of examples of countries achieving sustained primary surplus for extended periods. Eight of 34 OECD countries achieved an average primary surplus of at least 0.5% of GDP between 1990 and 2021. These generally occurred as debt declined relative to GDP.
To assess whether achieving the medium-term objective may be sufficient for Ukraine to reduce public debt towards its pre-2022 objective of 60% of GDP, two fiscal scenarios are considered: one in which current primary surplus target is successfully met from 2031, and an alternative downside scenario. Table 1.5 summarises the assumptions underpinning these alternative scenarios. The average interest rate is primarily determined by the share of finance that is provided concessionally, which is assumed to fall to near zero if fiscal targets are not met. The average interest rate ranges from between 8% and 9% in the case of fiscal targets being met, versus rising to above 16% by the early 2040s in the fiscal downside scenario with slower growth. These scenarios are considered in conjunction with the long-term growth scenarios discussed above (Table 1.3 and Figure 1.8). Three scenarios for public debt to GDP are presented based on two long-term growth scenarios (baseline policy and stronger reform) described above together with the two fiscal scenarios (“fiscal targets met” vs “fiscal downside”).
Public and publicly guaranteed debt in percent of GDP, alternative policy scenarios
Note: The stock of public debt includes USD 50 billion (27% of 2024 GDP) of financing provided by the G7's Extraordinary Revenue Acceleration (ERA) Loans. These loans will not incur interest or repayment costs for Ukraine while it remains an independent state with effective democratic mechanisms, respecting human rights, and does not receive war reparations. Debt-to-GDP (d) dynamics in time t are calculated as with g real growth, r the real effective interest rate, domestic and foreign inflation, the last year’s debt in foreign currency as share of last years’ GDP and pb the primary balance as a share of GDP. GDP growth and fiscal assumptions are detailed in Table 1.3 and Table 1.5.
Source: OECD calculations.
These scenarios suggest that the path to public debt declining towards 65% of GDP is narrow. Only in the case of sustained and strong reform implementation, and of meeting the medium-term fiscal targets does public debt decline relative to GDP. Achieving this will require Ukraine to outperform its peers’ track records and to secure continued financing support from its partners to sustain low effective interest rates. This would set debt on a declining path to reach 80% by 2050 (including Extraordinary Revenue Acceleration (ERA) Loan Initiative funding, discussed in Box 1.6. Such a path is only achieved in the accelerated reform scenario, in which Ukraine attains rates of GDP and productivity growth near those its peers achieved between 1995 and 2020, and reaches and maintains its fiscal targets. In the baseline policy reform scenario, the debt ratio slightly declines up to 2035 without however, reaching the target of 60% (around 90% with ERA), and then rises slightly as GDP growth slows due to demographic pressures and as a rising share of market debt increases interest costs (Figure 1.12). The fiscal downside scenario would lead to explosive debt paths, with the debt ratio breaching 140% by 2035 in the baseline policy scenario and sooner if reform implementation stalls.
These scenarios and projections are subject to high uncertainty. Major risks include uncertainties around the duration of the war and the nature of any settlement, territorial outcomes, the size of the population, and the return of displaced people. Another relates to the revaluation of GDP, which will be calculated and adjusted when the security situation allows fuller information to be collected and incorporated. Table.6 illustrates the sensitivity of the projected debt-to-GDP ratios to some of these scenarios. For instance, in the policy slippage scenario with hardly any net return of migrants and stalling reforms, the debt-to-GDP ratio would be almost 30 percentage points higher in 2035 relative to the baseline scenario. Conversely, if the war ends a year earlier than assumed, the debt-to-GDP ratio could be lower by almost 20 percentage points by 2035. Better accounting of under-declared activity (discussed in Chapter 2) would reduce the debt-to-GDP ratio. For example, if GDP was 25% higher, the debt-to-GDP ratio would be over 20 percentage points lower by 2035.
Public and publicly guaranteed debt, percent of GDP, under some alternative scenarios
Note: The stock of public debt includes USD 50 billion of financing via the G7's Extraordinary Revenue Acceleration (ERA) Loan Initiative, which will not incur interest or repayment costs for Ukraine under broad conditions (Box 1.7). The potential size of the underdeclared economy is discussed in Chapter 2.
Source: OECD calculations.
Improving public debt management can help reduce financing costs
Public debt issuance terms in Ukraine are relatively short, driven by high market rates and constrained access to funding. This is largely due to ongoing uncertainties and the country's low credit rating. Since 2022, agencies have downgraded their rating of Ukraine to ‘highly speculative’ or poorer, although has Ukraine not been rated at investment grade since entering international bond markets. Minimising the cost of finance for the public sector will increase fiscal space for reconstruction and recovery, and reduce financing costs for the private sector. When market access improves, developing domestic capital markets and improving secondary market liquidity for government bonds will help attract a larger domestic and international investor base. Key steps include reducing credit risk, diversifying funding instruments, issuing at longer maturities, and fostering systematic institutional investor outreach (OECD, 2025, forthcoming[63]). By acting now to improve its debt management operations, Ukraine will be able to access lower-cost financing as market access improves.
Currently, the Ministry of Finance is responsible for debt management, within the framework of the government’s Debt Management Strategy, (Ministry of Finance of Ukraine, 2019[64]). While this model has proven viable in the recent period in the context of martial law, it may face limits in the longer term. To enhance public debt management, Ukraine should establish a single Debt Management Office (DMO), operating outside the central bank and at arm's length from the Ministry of Finance to minimise political influence and ensure transparency. Organising the single DMO into front-, middle-, and back-office functions while avoiding overlaps in responsibilities would follow the model that most OECD countries find best supports operational efficiency. Clear mandates and guidelines should be established to delineate the roles of the Ministry of Finance and DMO in financing the public sectors, where the Ministry of Finance focuses on strategic targets and the DMO develops a roadmap to meet those goals.
Ukraine does not actively manage its cash reserves. Implementing robust cash flow forecasting systems, including extending forecasting horizons to 6 or 12 months, and automating data reporting, would enhance cash flow management and reduce reliance on large cash buffers. Moreover, establishing a centralised system for revenue and expenditure forecasting across all government units and levels of government can improve cash management efficiency and avoid shortfalls.
Integrating contingent liability assessments into Ukraine’s debt management would improve risk management. This requires developing a system to monitor the credit guarantee portfolio, with a particular focus on the financial health of state-owned banks and potential fiscal risks from the Deposit Guarantee Fund. Introducing a contingency reserve fund for credit guarantee-related obligations could mitigate their impact on debt and cash management.
Expanding the labour force with the needed skills will be central to the pace, sustainability and inclusiveness of Ukraine’s reconstruction and recovery. The labour force has been convulsed by the war (discussed above). Pressures will continue even once the security situation improves, as defence personnel are demobilised, reconstruction activity accelerates and displaced people return. Underlying these shocks are longer-standing labour market pressures. Labour force participation lagged behind most OECD countries before 2022, especially among older workers and among women (Figure 1.17).
Note: Panel B: Part-time employment data for Australia refer to 2020, for New Zealand to 2019; Japan data is missing. Panel C & D: age categories '40-49', '50-59', '60-69' and '70+' for OECD and peers are OECD calculations to match Ukrainian age categories. For Ukraine, age groups '60-69' corresponds to '60-70’, and '70+' to ‘71+'.
Source: World Bank, OECD Labour Force Statistics (database), State Statistics Service of Ukraine (SSSU).
Significant numbers of workers were undeclared (discussed further in Chapter 2) and anecdotal reports suggest the share has risen since 2022. Addressing these weaknesses in the labour market and the demographic headwinds will require a mix of policies that ensure incentives are strong for adults of all ages to participate in the formal workforce in greater numbers, that support their skills and that create the conditions for veterans and internally and externally displaced people to reintegrate. Such measures will be necessary to achieve the labour force projections in the draft national Demographic Development Strategy (Cabinet of Ministers of Ukraine, 2024[65]).
The population has been falling (Figure 1.19) reflecting low fertility and outmigration (Box 1.9). The fertility rate fell below the replacement of 2.1 in the mid-1970s, a decade earlier than the average of OECD countries, and below 1.5 in the mid-1990s, and was between 1.1 and 1.2 between 2000 and 2021 (Figure 1.19 Panel C). The war has introduced a new fertility shock, with the number of live births falling to 187 000 in 2023, down from 273 000 in 2021 and over 500 000 a decade earlier. Pre-war gains in life expectancies, coupled with war-time outflow of prime-age adults and children, has increased the relative number of older adults, accelerating the rise in the dependency ratio over coming decades (Figure 1.19, Panel B).
Ukraine’s population has been declining and ageing since the 1990s due to low and falling fertility, pre-war increasing life expectancies and net emigration (Figure 1.19, Panel A). The overall population was estimated at 41.8 million in 2021, having fallen by 300 000 annually on average over the previous three decades. There is significant uncertainty over the population since the onset of the war in Ukraine. In 2024, the population was estimated by the UN to be 37.9 million for the full territory of Ukraine within its internationally recognised borders, and to be 33.4 million within the territory controlled by the Government of Ukraine.
Ukraine’s last full national census was conducted in 2001 and subsequent population data are estimated by National Statistics Office, other national research instituted and by international bodies from surveys and modelling. Completing and publishing a full national population census once security conditions allow will be essential for informing and planning economic and social policies.
Source: (UNFPA, 2024[66]), (IMF, 2024[67]).
Working age population under alternative scenarios 15-74 years-old, millions of inhabitants
Note: The ‘baseline’ and ‘reform’ scenarios are described in Table 1.3. The “no return” scenario assumes no net migration.
Source: OECD Long-Term Database; UN World Population Prospects; Government Demographic Strategy 2040.
Note: Panel B: the total-age to working-age demographic ratio is defined as the number of individuals aged 0-19 and 65 and over per 100 people aged 20 to 64. In all countries, the evolution of total-age to working-age ratios depends on mortality rates, fertility rates and migration. Panel C: the total fertility rate in a specific year is defined as the total number of children that would be born to each woman if she were to live to the end of her child-bearing years and give birth to children in alignment with the prevailing age-specific fertility rates.
Source: UN World Population Prospects 2024.
Supporting war veterans and persons with disabilities to reintegrate in the labour force
Supporting and encouraging war veterans to return to the labour force
Reintegrating war veterans will be a crucial part of the recovery. While the size and nature of the future defence forces remain unknown, a significant portion of the estimated 1.1 million currently mobilised will be demobilised after the termination of martial law. Upon receiving veteran status, they will join the 1.3 million already registered in the Unified State Register of Veterans (Bäckström and Hanes, 2024[68]). Box 1.10 discusses some of the challenges in reintegrating veterans. Unlike in many mobilisations in OECD countries, Ukraine’s mobilisation up to early 2025 applied to men aged over 25 years, reducing the impact on their education and human capital compared with mobilisations that took soldiers out of school or higher education.
Ensuring that war veterans move into full-time employment will reduce poverty, support their well-being and will be essential for the sustainability of Ukraine’s public finances and the broader investment climate. The Ministry of Veterans Affairs is reforming the system of support for war veterans and their families. The policy focuses on transitioning from a system of lifelong benefits for war veterans and their families to a framework that emphasises motivation and engagement in civilian life. Funding is small compared to needs. Overall, the 2025 budget reduces the allocation to the Ministry of Veterans Affairs by 28% compared with 2024, to USD 68 million. Spending by other central authorities complement this, such as Social Insurance fund payments to employers hiring categories of workers including war veterans and the disabled, and the provision of microgrants for these categories of workers to develop their own businesses.
Croatia’s War of Independence in the early 1990s entailed large-scale mobilisation, especially of young men, and disruption to the economy. In the aftermath of the war, disability and other income support policies contributed to relatively low labour force participation among veterans. Survey evidence suggested that they enjoyed an esteemed place in society, but they achieved lower levels of education on average. Even two decades after the war, their labour market outcomes were poorer, and they benefited less from the rise in employment rates especially through the 2010s following Croatia’s accession to the EU.
More generous access to social protection for veterans, particularly disability pensions, partly contributed to these outcomes. Growing misuse of the disability system, including corruption, became a problem. To address this, Croatia tightened screening stringency along with requiring 3-yearly recertification of disability, ad hoc controls, and the introduction of a two-step assessment to be eligible for disability benefits, although the measures did little to reduce the overall number of enrolees.
The legacies of these policies were long lasting and difficult to correct. For example, by 2022, over 8.2% of the working age population received disability pensions, one-quarter of whom received a disability pension specifically for war veterans. These benefits led to relatively high spending on working-age income support in Croatia, largely for incapacity benefits, at over 3% of GDP in 2022 or nearly double the share spent in peer OECD countries. These benefits contributed to relatively low labour force participation among these age groups. They also crowded out targeted social support programmes such as the Guaranteed Minimum Benefit, reducing the social protection system’s effectiveness at protecting the most vulnerable households, especially during periods of economic shocks. Meanwhile, a special pension regime for veterans has weighed on the sustainability of the overall pension system. Croatia is now undertaking major reforms to its social protection system so as to better target income support, and to recalibrate its disability support system to better identify needs.
Source: (OECD, 2023[69]); (Kecmanovic, 2012[70]).
Tools for war veterans, those disabled due to the war and for their families to access public services and support are being developed. They are being built into the electronic platform for accessing government services, Diia. The government is placing a high priority on grants to veterans to develop new small businesses. The authorities recognise that support services will need to shift to be conditional on activation efforts while protecting those in need. The effectiveness and resources for interventions can be supported by a monitoring and assessment framework. As fiscal space allows, developing a form of voucher that gives war veterans access to services, along with a marketplace that provides transparent information about the services available, can help. Broader social communication measures are likely to be needed to counter discrimination against war veterans, especially women and those with disabilities (IOM, 2023[71]).
Responsibility for policies supporting war veterans has been fragmented and coordination across different ministries is limited. For example, the Ministry of Health of Ukraine, the Ministry of Education and Science of Ukraine, and the Ministry of Veterans Affairs of Ukraine have separate programs aimed at war veterans. Meanwhile, many non-governmental organisations and international partners provide small-scale programmes that support veterans and their families with specific needs, such as mental health, social reintegration, training or setting up small businesses. To strengthen the role of the Ministry of Veterans Affairs, particularly in coordinating support and directing veterans to these programs, the Coordination Headquarters for the Implementation of Veteran Policy has been established under the Cabinet of Ministers. Authorities in late 2024 approved efforts to develop a strategy for veterans’ return to civilian life with greater coordination across public and private entities. The strategy aims to ‘restore veterans’ and their families’ human capital and wellbeing, respect and honour, and ensure national security and defence’. Ensuring this strategy swiftly develops into concrete and coordinated actions will help ease the challenges of the demobilisation.
Reforming disability policies to improve access and recovery
Reforming disability support will be important for veteran reintegration and broader social needs. Across Ukraine’s population, 2.7 million were registered as having physical disabilities before 2022 (Government of Ukraine, 2024[49]), and this had risen to 3 million by mid-2024. OECD countries also have difficulties integrating veterans with disabilities. For example, US Iraq and Afghanistan war veterans who had suffered polytrauma or traumatic brain injury history and neurobehavioral symptoms had significantly higher unemployment rates than other veterans. They reported physical, emotional, cognitive, and interpersonal barriers to finding and maintaining work and to accessing support services (Wyse et al., 2020[72]). In Ukraine, access to disability pensions is hampered by substantial bureaucratic and time-consuming procedures (Overchuk, 2019[73]). Enrolment is granted by a medico-social expertise commission, then by re-examinations every 1 to 3 years. The admission system, however, is faced with problems, particularly for mental disorders, as such cases involve stricter procedures or have restricted access. For example, soldiers with Post Traumatic Stress Disorders cannot be granted disability pensions. Moreover, the regular re-examinations are cumbersome as there is no electronic register of documents. Rehabilitation is lacking. Only a third of all people with disabilities receive rehabilitation services, due to a lack of access to facilities – 42% of disabled have no access – and more than half are not informed about rehabilitation (The National Assembly of People with Disabilities, 2023[74]). Corruption is also an issue, with more than 30 corruption cases having been instigated in the five years before the war, typically concerning purchasing disability status, acceptance of forged medical documents, and creating obstacles to register disabilities (National Agency on Corruption Prevention, 2022[75]), and reports of corruption in disability certification have continued amidst the mobilisation and conscription.
The labour market inclusion of people with disabilities is weak, even if social partners are conscious of the importance of the employment of veterans and others with mental and physical health challenges. 16% of registered disabled persons were employed in 2021, while the State Employment Service has less than 30 000 persons with disabilities registered and few of these are helped into employment (State Employment Service, 2023[76]). Low employment reflects weak rehabilitation and inclusion in the education and training system. The State Employment Service provides retraining to only about 3 000 persons with disabilities annually. It also reflects low wage subsidies to support the integration of people with disabilities into the labour market. Employers that hire persons with disabilities are entitled to a lower social security contribution of 8.41% (for some NGOs, the rate is 5.5%) rather than the 22% standard rate, but the reduction is only weakly related to the degree of disability (Ministry of Justice, 2011[77]).
Pursuing plans to align Ukraine’s disability support with international norms can improve outcomes and help Ukraine manage the large number of newly disabled persons that may follow demobilisation. The government plans to reform the system of medico-social expertise commissions in 2025 to reduce the reliance on subjective evaluations and to implement the international classification of functioning, which would increase the focus on the functionality of disabled people – a measure that could facilitate the labour integration of people with disabilities. The overall aim of the reform is to simplify access to disability pensions in Ukraine and make the system more transparent, while enhancing inclusion opportunities. The latter, however, requires investments in rehabilitation, retraining and the development of inclusive infrastructure. Income support policies can be designed in a way that encourages movement into employment, for example by limiting or delaying the withdrawal of benefits as labour income rises.
Supporting the internally displaced and attracting the externally displaced back into Ukraine’s labour force
Internally and externally displaced populations have different characteristics and face different challenges. Approximately 4.6 million persons are displaced internally (Ministry of Social Policy of Ukraine, 2025[78]), often from areas under temporary Russian occupation or armed attack. They often need urgent support to re-integrate into the economy and reduce the risk that they emigrate. Many have lost their housing and places of work or education and have moved to where they can find accommodation rather than to where employment, education and other resources are available. Much of Ukraine’s national and municipal social support policies has been reoriented to support them, but unemployment and poverty rates among displaced persons are high.
The large-scale external displacement since 2022 follows decades of net emigration (Figure 1.20). Of the 8.0 million who have been externally displaced since 2022, 6.9 million remained outside of Ukraine at the end of 2024. In the near-term, policy can ensure that barriers are not placed to their return, while supporting and encouraging returns as conditions allow. Very few of the 30% to 40% of the initial wave of departures who have returned report considering leaving again (IOM, 2024[79]). However, changes in conditions can lead plans to shift quickly and prompt renewed emigration or reduce returns. Further, even if improving conditions encourage migrants to return, there may be a new wave following the end of the war. About ninety percent of the externally displaced are women and children, as most men between the ages of 25 and 60 are not authorised to leave Ukraine under martial law (UN Women, 2022[80]). Once this restriction is lifted, many men may decide to depart, for example to join family members abroad.
Externally displaced Ukrainians represent an important resource, who can contribute to Ukraine’s reconstruction and recovery, including through the labour force and, especially on their return and reintegration into the labour force, to public finances. Currently about 10% work remotely for Ukrainian enterprises (Mykhailyshyna, 2023[81]). Employment rates of displaced Ukrainians who benefit from temporary protection in Europe ranged from 8% and 66% in 2023, depending on a country, and has been rising (European Migration Network, 2024[82]). Recorded remittances to Ukraine are substantial, but fell from USD 18.1 billion in 2021 to USD 15.7 billion in 2023, with the fall attributable in part to capital controls introduced at the start of the full-scale invasion and to greater informal cash movements. Some displaced Ukrainians are gaining skills through both formal training and job experience, and plans for the proposed draft replacement Labour Code to better recognise experience and qualifications gained outside Ukraine would allow both workers and employers to benefit from these skills.
Note: Panel A & B: the definition of inflows includes asylum seekers and foreign population. Panel B: the graph shows a selection of OECD countries.
Source: International Organization for Migration (IOM), the United Nations High Commissioner for Refugees (UNHCR), and State Statistics Service of Ukraine (SSSU); UN World Population Prospects 2024.
Engaging with Ukrainians abroad and facilitating their return could significantly bolster Ukraine’s prospects for growth and the health of public finances into the long term. Most have maintained strong connections with Ukraine, including 3.0 million who made short visits to see friends and family, access healthcare or for administrative reasons. Two-thirds of the externally displaced still report wanting to eventually return when security conditions allow, although this share has somewhat fallen since the start of the full-scale invasion war conflict (UNHCR, 2024[83]). Single persons, those with property and jobs to return to, children to educate, or who had maintained connections and who had visited Ukraine after their emigration report being more likely to return or wish to return. Information from authorities about the situation and access to resources also encourages return.
Several OECD countries have developed policies to maintain a global network of emigrants and to support and encourage those who wish to return, such as Ireland’s ‘Global Irish’. Some countries, such as Lithuania and Poland, have developed dedicated information services to communicate to emigrants who left for better economic opportunities elsewhere. To help returnees re-settle, some countries integrate support with that for immigrants. This can include dedicated one-stop shops providing access to social support services, or dedicated employment services (Lithuania or Spain’s “Service Labour Mediation”). Programmes such as Ireland’s “Back for Business” mentoring programme provide returning emigrants with business mentoring and support for creating a business plan, on financial management skills, navigating bureaucratic processes, and accessing finance.
These policies have succeeded in supporting limited numbers of returning emigrants relative to the outflows. Some OECD members and partners, including Mexico, Colombia and South Africa, have struggled to achieve significant return migration flows. For example, it is not clear whether programmes to enhance financial incentives to return, such as reduced tax rates or other financial incentives provided by Greece, Portugal and Lithuania, are cost-effective. Evaluating and adjusting policies supporting returning emigrants can contribute to more effective programmes.
Still, for many displaced, return is likely to follow an extended period abroad, including unemployment, inactivity, or work in jobs that do not match skills. Cooperation between Ukraine and host countries can support the dual goals of displaced people integrating into host countries’ economy and building their human capital, while minimising barriers to their return to Ukraine once conditions permit (OECD, 2023[87]). Achieving this includes public employment services and training institutions collaborating to support employment and skill development in sectors that are essential for the recovery of Ukraine, such as construction, engineering, energy, health, IT and the green transition; streamlining mutual recognition of skills and qualifications; support of Ukrainian language training in host countries for children and young adults; retaining and facilitating Ukrainians’ ties with Ukraine; and, building a legal framework for regular migration.
The newly created Ministry of National Unity aims to overcome the challenges Ukraine faces in retaining its externally displaced population, with a three-stream approach: i) strategic communications with people inside and outside of Ukraine, ii) facilitation of engagement with Ukrainians abroad supporting the returnees; and iii) redesigning national identity policies. Into the longer-term, the measures discussed throughout this Survey to support investment and growth, by improving the business environment, the rule of law and government integrity, are among the most effective means of ensuring residents stay and encouraging emigrants to return. The following discussion outlines actions being taken and priorities to encourage returns. Complementing these, sharing information about pathways prospects for returning, as well as helping to maintain emigrants’ networks with residents can encourage returns (Carling and Talleraas, 2016[88]). Box 1.11 presents some examples of such measures in OECD countries with significant diaspora.
Strengthening active labour market policies and access to retraining
Effective active labour market policies, especially for job matching and skill retraining, can help address both current and prospective challenges for Ukraine’s employers and labour force and encourage externally displaced people to return. Active labour market policies are under-resourced. Prior to the war, active labour market spending in Ukraine was low, below 0.4% of GDP (OECD countries spent on average 0.62% of GDP), about one-quarter of which was for the public employment service. Even amidst the constraints of the full-scale war, the public employment service provided services to 660 000 in 2023 and 295 000 found jobs as a result (ILO, 2024[89]). It is benefiting from reforms, including integration into the European Employment Services and the broader digitalisation of public services. Ensuring that public employment services are accessible outside of Ukraine can help emigrants identify job opportunities and encourage their return. The government is expanding support for training and business creation, but the scale remains small. It provided 40 500 training vouchers during 2023-2024, including 8 500 vouchers to internally displaced persons, mostly for retraining and upskilling, at an average value of USD 360. Such efforts are likely to need significant expansion. The government is preparing to develop information systems to monitor and evaluate the effectiveness of different active labour market interventions, drawing on the experience of OECD countries, which can help direct scarce resources to where they are most effective.
Improving the quality of labour relations
Unfavourable working conditions in Ukraine could discourage externally displaced persons from returning. For example, the low share of part-time work likely indicates inflexible work arrangements (Figure 1.21, panel B), while mortality risks from diseases related to occupational risks are higher than in other European countries (Pega et al., 2023[90]). These weaknesses are in part due to Ukraine’s current labour law system, which is complex and does not reflect modern working arrangements. It is based on the Soviet-era 1971 Labour Code and includes a range of legislative acts covering labour law, social security, and related human rights. Martial law has abrogated much of these, for example by limiting constraints on employers changing work arrangements. Labour law reform can simplify hiring, develop alternative employment types including greater part-time or flexible time work arrangements, support social dialogue, and better balance employers’ and workers’ rights and obligations. In the process, and by simplifying the legal framework and administrative requirements, it can encourage employers and worker to formalise labour relations. In doing so, it can identify and require workers who are effectively employee’s dependent on one employer are registered as self-employment to be registered as employees (OECD, 2019[91]). A draft replacement labour code was introduced to the parliament in January 2024, towards consolidating and simplifying labour law, and aiming to bring it into conformity with ratified International Labour Standards and EU acquis, which are welcome efforts. Consultation, including with social partners and international organisations can support the new law’s quality and implementation.
Ukraine’s resilience to the war has been supported by the solidarity between workers, employers and the government. However, social dialogue was weak before the war, and many standard channels of have been curtailed by martial law and security restrictions. As security conditions allow, a concerted effort to rebuild tripartite social dialogue can contribute to the reconstruction and recovery. Effective social dialogue at the workplace level can support the adjustments in work practices and labour relations that the recovery is likely to bring. At the level of national policy, effective social dialogue can improve the quality and communication of reforms and reduce the risk of unintended effects. This is particularly the case for reforms central to social partners’ concerns, such as reforms to the labour code, social protection and education. Drawing on lessons from OECD countries, the new labour code can support a stronger social dialogue (OECD, 2018[92]).
Supporting access to quality housing
Addressing housing access is important for encouraging people to locate where there are employment opportunities and encouraging externally displaced people to return. The destruction and population movements since the war have shifted housing from a surplus in many areas to acute shortages. Over 10% of the housing stock was damaged or destroyed by the end of 2023 (World Bank, Government of Ukraine and European Union and the United Nations, 2024[23]). Nine percent of the population (equivalent to three million people) lived in damaged housing in mid-2024. The investment over the next decade to rebuild housing was estimated at the end of 2023 to be the equivalent of 50% of annual GDP (World Bank et al., 2024[93]).
Housing poverty has become significant. Damage and displacement have led to rapidly rising rents and overcrowding, especially among the internally displaced, 59% of whom now rent their accommodation. Among the internally displaced who are renting, over half spend more than 70% of their household income on rent and utilities, compromising their ability to afford other necessities. Across the full population, 54% of renters spend more than half their household income on housing. Access to affordable housing is a significant influence on displaced people’s decisions on where they relocate within Ukraine or whether to return. This can lead to relocate to areas where housing is available rather than where there are the greatest labour market and education opportunities. Returnees often face dire housing conditions, citing the unaffordability of housing during displacement as a reason for moving back to their own, often heavily damaged, homes (IOM, 2024[94]).
The Ukrainian government, supported by various international organisations, is providing short-term housing support. It has established temporary shelters in schools, public buildings, modular housing units, and other converted spaces, which are housing approximately 2% of the population. The government also provides financial support through rental subsidies for people who choose to stay in private accommodations rather than government-run shelters. For homeowners, the eRecovery program offers modest financial support to repair properties that have been damaged or to purchase a new house if the existing house was destroyed. Support is capped at UAH 350 000 (USD 8 600) and UAH 500 000 (USD 11 900) respectively for appartements and houses. The government is extending access to the displaced populations outside of Ukraine owning affected housing if they give authority to someone in Ukraine to access the support.
Long-standing institutional weaknesses have curtailed the development of formal rental and mortgage markets. Home ownership rates have historically been very high, following the mass privatisation in the early 1990s. Ukraine’s housing laws are fragmented, combining elements from the Soviet period with transitional and market-oriented policies. This combination of old and new provisions has led to an inconsistent and sometimes contradictory legal framework, undermining the formal market. The Ministry for Communities, Territories and Infrastructure Development plays a central role in implementing housing policies, but coordination across different government bodies remains patchy, affecting the comprehensive and effective application of housing regulations. Overhauling the housing policy framework to provide a coordinated national housing policy framework could help address these challenges (Fedoriv and Lomonosova, 2019[95]). Ukraine could draw from the OECD Housing Policy Agenda, which offers a comprehensive framework and recommendations to reform the housing system and ensure that housing plays its role in promoting resilience, inclusion, and sustainability (OECD, 2024[96]).
The private rental market in Ukraine remains largely unregulated, creating significant risks for both landlords and tenants. The absence of clear legal guidelines often leads to informal rental agreements, depriving tenants of basic protections against arbitrary rent increases or evictions. For example, among the internally displaced people living in rental accommodation, 37% lack legal documents formalising their current tenure. Twenty percent of internally displaced people and 16% of renters in general report being evicted from their dwelling since 2022 (IOM, 2024[97]). Formalising rental markets by enforcing written contracts, providing a framework for rent increases, and guaranteeing tenant and owner rights would particularly help vulnerable groups such as internally displaced people and low-income families.
Developing mortgage markets can help mobilise finance for Ukraine’s reconstruction. While government lending programmes such as eOselia provide relief, with more than 15 000 mortgages at reduced rates with large shares issued to military and law enforcement personnel by 2025, private mortgage products struggle to compete with these subsidised offerings. Even before the war, mortgage markets had remained underdeveloped. An effective credit register would improve transparency and allow for better borrower risk assessment, encouraging the extension of loans and reducing lending rates.
Land policy plays a critical role in housing development. Decentralisation reforms have increased the responsibilities of local municipalities regarding land management, yet their financial and organisational capacity and resources are still being developed and have, in many cases, been set back by policy measures introduced following the full-scale invasion (discussed above) (Shnaider, Anisimov and Lawson, 2024[98]). Better integrating land use planning and housing policy can improve the quality of urban development.
Once the security and population situation has stabilised, and market and institutional conditions allow, shifting to a recurrent property tax system based on up-to-date market values can encourage more effective use of existing properties and generate a relatively efficient source of public funding. Well-designed property taxation can deter speculation, reduce the incentive for owners to not make vacant properties available for rent or sale, and encourage productive development (OECD, 2024[96]). Ukraine has in place a recurrent property tax, but it generates a small share of revenues, despite relatively high administrative costs (Ministry of Finance, 2023[28]). Businesses are the main payers, unlike in most OECD countries. Currently the tax’s design does not relate the amount due to property values, as, for example, similarly sized houses in low and high property value areas are subject to the same taxation. In contrast, most OECD countries base property tax on the property’s value.
Furthering progress in women’s labour force participation
Improving gender equality in the workplace would strengthen the labour force and contribute to an inclusive recovery. At less than 48% in 2021, women’s participation in Ukraine’s labour force prior to the war lagged the OECD countries average of 55% (Figure 1.17, Panels A, C and D). The gender wage gap has also been higher than on average in the OECD (Figure 1.21, Panel A). This appears to largely relate to occupation segregation, with women occupying lower-paid and more junior jobs (Klemparskyi et al., 2022[99])., and to the lack of a legal requirement of equal pay for equal work (World Bank Group, 2024[100]). Current labour laws restrict women’s employment (Klemparskyi et al., 2022[99]). For example, they prohibit employing women for night or overtime work, work that is classified as dangerous, or sending pregnant women and women raising children under the age of three on business trips. The share of major firms managed by females is low, at 15% in 2023 (World Economic Forum, 2023[101]), as is the share of political and business leaders who are female, despite some progress in recent years. The war may have exacerbated the gender wage gap, since the sectors in which women are more represented, such as services, have been particularly affected by it. On the other hand, the war may have helped to break some gender stereotypes, as women entered higher-paid, traditionally male-dominated professions. The government adopted in 2023 a National Strategy on Reducing the Gender Pay Gap. Addressing legal restrictions to women’s work would help to expand women’s contribution to Ukraine’s recovery.
Note: Panel A: monthly earnings correspond to median wages of men in the same decile. Panel B: STEM data refers to 2020; VET data to 2022.
Source: World Economic Forum, World Bank, UNDP, GoVet, OECD gender wage Gap (database).
Access to childcare is another barrier to female employment (Centre for Economic Strategy, 2019[102]). The war has necessarily worsened the situation, as kindergartens and schools are increasingly scarce due to damage and staff shortages. For externally and internally displaced women, childcare can be even less accessible due to costs, over-crowding, lack of family support or long commute times, creating additional barriers to accessing work and integrating into their new locations. The government has a programme funding unemployed women to provide small-scale childcare. The Ukraine Plan includes funding to develop elder care, which can also act as a barrier to primary caregivers working. These are welcome, especially in areas with population inflows. Developing fathers’ care role, including through stronger access to parental leave, can help reduce employment discrimination against women.
Women are less likely to pursue studies in STEM subjects that are associated with higher earnings than care-centred occupations (Figure 1.21, Panel B). Yet girls perform better in science and reading subjects, and the gap in mathematics has declined according to the 2022 OECD PISA results (OECD, 2023[103]). Indeed, women in Ukraine have traditionally participated strongly in higher education. Measures to bridge the gender gap in educational choices at young ages can help reduce the gap in later studies. For example, mentoring and exposure to women engaged in STEM research can help improve positive attitudes to STEM disciplines amongst female students (OECD, 2021[104]).
Improving pension policies to encourage participation and support incomes
Early exits from the labour force reduce employment, pension contributions and retirement incomes ( Figure 1.17, Panels A and B), and add to fiscal pressures (2024[105]) (Høj and Klimchuk, 2024[105]). The Pay-As-You-Go (PAYG) pension system has been in deficit for some years, which will be aggravated under existing rules by the effects of the war and population ageing, dragging scarce fiscal resources from other priorities. The deficit mostly reflects a low effective retirement age, and a low number of contributors. This more than offsets the lower expenditure due to relatively low benefits and short time in retirement, which contributes to relatively high rates of old-age poverty. While Ukraine has maintained pension payments through the war, inflation has reduced their real value, contributing to hardship among the elderly. The deficit has fallen from 4.3% of GDP in 2022 to 2.8% of GDP budgeted for 2025, as contributions from mobilised personnel have outpaced benefit payments. Under existing policy rules, the deficit is likely to widen again when defence personnel are demobilised, reducing their contributions and increasing the number of beneficiaries.
Retirement ages have been rising, following recent reforms. While the statutory retirement age is 60, the share of those older than 60 in work has increased from 0.5% to 14%, although still few retire at or after age 65. Workers retire at a younger age than on average in OECD countries, but time spent in retirement is shorter, as life expectancy at 60 is low. In 2021, before the war, it was over 74 years for men and over 79 for women. The rise in typical retirement ages mainly reflects the increase in 2017 in women’s mandatory retirement age by 5 years, to align with the male retirement age, and tax initiatives to encourage workers to remain on the labour market. The war may also have induced older workers to remain in the labour force. Sustaining these increases will be central to supporting the labour force and retirement incomes.
Better alignment of pension benefits with contributions would improve incentives to contribute, encourage longer working lives, and help to achieve appropriate levels of declared income, as well as contribute to the collection of labour income tax. Contribution rates are 22%, 85% of which is allocated to the pension system. Self-employed workers in the ‘simplified’ tax regime may make social security contributions based on the minimum wage rate. The ceiling on contributions was increased from 15 to 20 times the minimum wage from 2025, which is high relative to average or minimum wages, although many of Ukraine’s neighbours do not have any ceiling limiting contributions (ILO, 2019[106]). High contribution rates combined with weakness in revenue collection, particularly in monitoring labour income, create incentives to under-declare employment income.
Pension payments are calculated based on an accrual rate of 1 percentage point per year, so a 40-year contribution period entails benefits of 40% of a calculated wage that accounts for career income and the average wage in Ukraine over the preceding three years, leading to a lower replacement rate than in most OECD countries (ILO, 2019[106]). Pension payments are not subject to personal income tax, in contrast to most OECD countries. Continued work is encouraged with an accrual rate of 6% per year after the official pension age, increasing to 0.75% for each additional month after 5 years (ILO, 2019[106]). These rates are higher than in most OECD countries. The calculation of future payments could be made more transparent. The government plans to improve the user-friendliness of its online calculator, which would help motivate contributions (OECD, 2020[107]). The government is discussing reforms to the large number of more generous special pension regimes, which mostly apply to judicial and defence workers. The proposed reforms would bring their pension calculations and eligibility rules closer to the standard pension regime, although they would remain significantly more generous. The planned reforms are a welcome step towards greater equality and transparency across the workforce and towards improving fiscal sustainability. Pursuing the alignment of payments and contribution rules, curtailing new entries into the special regimes and ensuring that payments and contribution policies for demobilised personnel create incentives for full working lives and discourage early retirement would improve the sustainability and integrity of the pension regime.
Taxing pension benefits, after shifting to a progressive personal income tax system so as to protect small pensions, would support tax revenues and help manage the fiscal pressures of an ageing population. Ukraine had such a policy in place from 2014 until it was overturned by the Constitutional Court in 2017. Planned pension reforms (discussed below) may investigate the possibility of incorporating certain pension benefits within the personal income taxation system.
While indexation rules have reduced the number of very low pensions in recent years, in practice the average pension is well below the minimum wage, and nearly half of all pensioners receive a pension that is near or lower than the subsistence level, contributing to high rates of poverty among the elderly. This is despite various benefit floors, although these weaken the connection between a worker’s pension contributions and benefits. Encouraging longer contribution periods and reducing the share of wages that are undeclared, would bring more retirees above the pension floors.
From 2027 or following the end of martial law, the government plans to implement reforms to the funded pension system and will introduce an accumulation account. The new system will be made of a mandatory savings system funded from the 22% compulsory social security contribution, a voluntary savings system funded through contributions by the employer and employee into an investment account, and a solidarity system to ensure a basic pension set at 30% of the minimum wage (the equivalent of USD 56 per month in 2025). The goal is to provide individuals with the opportunity to receive a pension of at least 60% of their previous earnings. The transition to this system can be challenging, as it will entail greater contributions from declared salaries, reducing take-home incomes in the near-term. In the longer-term it can support lifetime incomes and help develop a pool of savings that can finance investment in the economy (investment needs are discussed in Chapter 2). Strong communication on these benefits can help motivate employees to contribute. Introducing this measure promptly, when many enlisted personnel have accumulated substantial savings in overnight deposit accounts, can help support lifetime incomes and transform savings into a pool of funds for Ukraine’s longer-term development.
Reforming labour taxation to encourage employment
The high personal income tax and social contribution rates relative to the ‘simplified’ taxation system, combined with weaknesses in revenue collection, can create disincentives to declare employment. Marginal effective tax and social contribution rates at the average wage relative to labour costs are lower in Ukraine than most OECD countries and Ukraine’s peers (Figure 1.22). Among OECD countries with relatively high labour income tax wedges, these countries tend to have very high-quality institutions and high tax morale, and effective and efficient tax administrations that reduce compliance costs. When these are not in place, high tax wedges add to the challenges for supporting employment and investment and add to pressures in the social security system. In Ukraine, a smaller share of labour income taxpayers are private sector workers than may be expected given the economy’s structure (Zablotskyy and Djankov, 2023[53]). Public administration and defence workers made up the largest single group of income tax revenues in 2020, and this share has risen further since the start of the war with the mobilisation. Reports suggest undeclared wages have become more common. The focus of the State Labour Service since 2022 has been to support businesses and workers to adapt to the war, rather than conducting inspections. Mobilisation of eligible men from lists of registered employees is also likely to have encouraged greater undeclared work. Undeclared workers may experience poorer working conditions, less investment by their employer in their skills and lower productivity compared with declared workers (OECD, 2018[92]). Bringing more private sector workers into the labour income tax system would support revenues and, once public finances allow, permit lower rates.
The National Revenue Strategy proposes to move to two or three personal income tax rates. It does not propose reducing the rate at low incomes. It makes these reforms conditional on completing reforms to improve the management, digitisation and integrity of tax administration data. The design of this reform would benefit from considering the total effect of personal income tax and social contribution rates, tax deductions and social benefits. Calculating an average effective tax rate for different employment types, income levels and household structures can enable fuller comparisons with other countries. Combining the analysis of social transfers, personal income tax and the unified social contribution allows a comprehensive analysis of work incentives and redistribution at different income levels and for different types of households.
In the medium-term, going beyond the reforms proposed in the National Revenue Strategy, personal income tax and the unified social contribution rates can be shifted to a progressive schedule with lower rates at very low incomes, financed by higher rates at higher incomes. This would improve incentives for employers and their workers to declare labour income as a dependent employees, broadening the tax base and improving financing for social security. This can be achieved by reforming personal income tax rates schedule, while social security contributions are being reformed with the changes to the pension system (discussed above). Indeed, reforming personal income tax rates may be more effective at induing higher declared incomes (Lehmann, Marical and Rioux, 2013[108]). Designed well, these reforms can be revenue neutral or supportive, including by bringing more workers into the standard income tax system, which will support the sustainability of public finances and the social protection system. To be effective, such measures should complement broader taxation and labour policy reforms, notably narrowing of eligibility for the ‘simplified’ tax regime, improvements in tax administration, and reforms in labour law to support registration of employees, discussed elsewhere in this Survey and in (Bulman, 2025, forthcoming[55]) (Calligaro and Centrangolo, 2023[109]).
Marginal personal income tax and social security contribution rates
Note: Marginal tax rates relate to a single person without dependents. The OECD average is shown at 67%, 100% and 167% of average wage (AW) earnings. OECD data refer to 2023, for Ukraine data refer to the policy rules in place in January 2025. For OECD and peers, personal income tax rates refer to combined (central and sub-central government) rates, and employer social security contributions include payroll taxes. For Ukraine, Group 1 and Group 3 marginal rates are calculated at 100% of the average wage in 2024, of UAH 21473 per month. For Group 1 (self-employed), the marginal rates shown reflect a personal income tax rate of 10% of the subsistence wage (UAH 2920 monthly), a military tax of 10% of the minimum wage (of UAH 8000 monthly) and a social security contribution rate of 22% of the minimum wage. For Group 3 (self-employed), the rates shown are based on gross income being equal the average wage rate, with a personal income tax rate of 5% and a military tax rate of 1% of this income, and a social security contribution rate of 22% of the minimum wage.
Source: OECD Tax database, Orbitax, VoxUkraine.
Greater preparation and investment will be required to improve environmental quality and adapt to climate change
The war has caused significant environmental damage, which also harms the country’s productive potential, and will require extensive interventions to remedy. Explosions, munitions, mines and fire have degraded 30% of forests, extensive areas of soil and polluted water bodies. The destruction of the Kakhovka Dam by Russia caused extensive water and land pollution downstream and damaged protected ecosystems, in addition to the humanitarian impact. Oil leakage from damaged tankers near the Kerch Strait has damaged Black Sea ecosystems. The ongoing war inhibits collecting information on environmental damage in many areas. Some of the environmental damage can be addressed through large-scale interventions, such as the demining and cleaning. Nonetheless, the time and scale of the interventions to restore the environment is likely to be considerable.
Much environmental damage is longer standing, largely reflecting the legacy of weak incentives to protect environmental quality. Despite the richness of the agricultural land (discussed in Chapter 2), intensive farming practices including the approach to tilling, fertilising and managing soils have been degrading soil quality for decades (Drobitko et al., 2022[110]). Other problems include poor liquid and physical waste management, reflecting delimited use of price incentives alongside gaps in physical infrastructure and the legal framework.
Many OECD countries have found environmental clean-up to be challenging, even when damages are of a much smaller scale than in Ukraine (OECD, 2019[111]). Enforcing the polluter-pays principle (OECD Council, 1989[112]) is difficult in the context of damages caused by the war. Public funds generally lead clean-up efforts. OECD countries have used financing from multiple levels of government and EU grants to clean up sites, although inadequate financing has often slowed efforts. Given scarce financial and remediation resources, building a register of environmental damages, as countries such as Poland are doing, and assessing the risk that damaged sites could cause greater harm, as Norway does, can guide and prioritise clean-up efforts.
Ukraine achieved one of the largest reductions in greenhouse gas (GHG) emissions globally, of 76% between 1990 and 2022 and was approaching its 2030 emissions reduction target prior to 2022 (United Nations Climate Change, 2024[113]) This reduction in part reflects the drop and change in economic activity. Relative to GDP, Ukraine’s emissions are among the highest globally (Climate Action Tracker, 2021[114]), reflecting very low emission prices, alongside subsidised energy costs that reduced incentives to improve energy efficiency (discussed in Chapter 2). Greenhouse gas emission tax rates are the equivalent of less than one USD per tonne of CO2e, and about 50% of emissions are priced, mostly via fuel excise and carbon taxes (illustrated as the lighter blue areas in Figure 1.23). While military activity has generated significant emissions, the war has damaged or destroyed many of the largest sources of Ukraine’s emissions, such as coal-fuelled steel plants and electricity generators.
Ukraine is highly vulnerable to the impacts of climate change through increased temperatures and higher variability in precipitation (Met Office, 2021[115]). Warming is projected to be greatest in central and northern Ukraine, while coastal regions fare better due to the moderating effect of the Black Sea and Sea of Azov. Warming is also forecast to reduce the number of frost days with some areas becoming frost free. Precipitation is forecast to decrease most in the south and south-eastern regions and increase in the north of the country. Extreme heat and rainfall events are forecast to become more frequent and intense, potentially increasing soil erosion (Svetlitchnyi, 2020[116]). Already climate change has led to significant changes in land use and high rates of tree deaths in some regions (IPCC, 2022[117]) (Senf et al., 2020[118]). Floods in recent decades, particularly in the more mountainous western regions, have caused scores of fatalities and damaged thousands of homes and infrastructure.
Adaptation will help mitigate the main socio-economic risks posed by climate change. Agriculture and food security are likely to be affected (World Bank, 2021[119]). Adopting more efficient water management systems, irrigation technology and drought resistant crop varieties can help mitigate against these impacts. To help mitigate flood damage, strong urban planning can avoid development in flood-prone areas. Flood defences, including green areas, and developing early warning systems can help in areas already developed. Property insurance markets are little developed. To reduce insurance costs in areas prone to flood risks, Ukraine can draw on the model of several OECD countries such as the UK in obliging house insurers to pay a level on all policies into a reinsurance fund for flooding risks. The insurers can then opt pay a modest charge and to pass the flood-related risks to that fund (OECD, 2024[120]).
The reconstruction of urban areas will need to account for the expected increase in flood events and extreme temperatures. The energy sector and infrastructure more broadly are also vulnerable to flooding and heatwaves. Increased water stress arising from higher temperatures and reduced rainfall places pressure on energy production through reduced efficiency of thermoelectric generation and the large volume of water the sector needs for cooling thermal and nuclear power generation. Much of Ukraine’s older infrastructure and housing stock were not designed for energy efficiency, for example due to low effective energy prices, or to withstand the impacts of climate change.
Stronger tax and price signals can encourage more environmentally sustainable reconstruction investments
The recovery and reconstruction give a renewed impetus to modernise Ukraine’s industry and infrastructure, ensuring that it is adapted to the projected effects of climate change and achieves the emissions reductions objectives. Ukraine is committed to ensuring that the reconstruction and recovery lead to more sustainable investments and activity, both through regulatory reform and developing taxes and incentives. For example, its estimates of the costs of reconstruction (discussed above and in Chapter 2) account for adaptation and reducing emissions.
Ukraine has lagged in preparing detailed climate adaptation strategies. It presented its first strategy in September 2024, developed for three pilot regions. National development plans outline polices directed to ensuring that future business investment adapts to climate and change and is more environmentally sustainable. The government has adopted a National Waste Management Plan through to 2033 and has a roadmap for creating a National Environmental Fund over 2025-2027 with the goal of building a new system of environmental taxes. Ensuring that these many plans turn into concrete actions implemented early in the reconstruction, informed by international experience, can provide greater certainty to investors and ensure investments improve the economy’s environmental sustainability.
Ukraine plans to align emission prices with the European Union through an emission trading scheme (ETS), combined with higher taxes for emission sources not included in the ETS. Ukraine has adopted an action plan for developing its national ETS, with the first operational phase to be start in 2028 (Cabinet of Ministers, 2025[121]). It will raise coverage of industry emissions to 87% and the price towards international targets (the green areas in Figure 1.23 illustrate the simulated likely coverage of the planned emission trading scheme). Not implementing this price could subject exports to the European carbon border adjustment mechanism. To limit the welfare costs for vulnerable households, the scheme could use some of the revenue generated to provide well-targeted income transfers that offset some of the increase in costs, building on policies that Ukraine implemented for the energy price adjustments in the late 2010s. Ukraine has phased out a large share of its universal fossil-fuel subsidies and strengthened targeted support programmes. Still, public service obligation schemes and energy pricing arrangements effectively subsidise consumers, and do not encourage energy savings (Petkova, Michalak and Oharenko, 2023[122]). To ensure that energy infrastructure is rebuilt in a way that provides energy security and reduces emissions, regulatory and electricity market reforms will be required. These are discussed in Chapter 2.
Simulation of the Ukraine effective carbon rate (ECR) profile if its emission trading scheme were in place in 2021
Note: This ECR profile presents the coverage that Ukraine’s planned ETS would have resulted in had it been in place in 2021. The permit price is set at a symbolic EUR 1/tCO2 to highlight ETS coverage.
Source: OECD estimates of coverage using information from the Cabinet of Ministers of Ukraine (2020[123]). Other GHG emissions data are from CAIT (Climate Watch, 2022[124]) while the data on CO2 emissions from energy use are based on the IEA World Energy Balances (IEA, 2023[125]).
Similarly, implementing well-designed prices on pollution and other environmentally damaging activity can limit damages while encouraging polluters to adapt their operations in the most cost-effective manner. Existing environmental taxes are significant, but they could more coherently support environmental policy objectives (Neuweg et al., 2023[123]). Eliminating subsidies or reduced tax rates for environmentally damaging items, is a first step. In addition, Ukraine could consider imposing excise taxes on fertilisers or manure that would damage the soil quality or groundwater, as in the Flemish region of Belgium (OECD, 2020[124]). Complying with environmental tax requirements would be easier for businesses if the different administering bodies aligned their approaches. Building cooperation and information exchanges between the tax authorities and the State Environmental Inspection would help improve consistency (Neuweg et al., 2021[125]).
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