OECD Economic Surveys: Ukraine 2025

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OECD Economic Surveys

6 May 2025

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2. Raising investment and exports

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Volker Ziemann

Andrew Keith

Abstract

Long-standing structural challenges have contributed to a high level of informal activity, low integration into global value chains, low investment and stagnant productivity. Russia’s full-scale invasion of Ukraine has amplified these challenges and created new ones. While the economy has shown remarkable resilience, largely driven by a “defence economy” and substantial foreign support, this resilience is not a sustainable foundation for long-term recovery and growth. A sustained recovery and reconstruction will require improving the framework conditions for entrepreneurship, investment and innovation. This entails improving the public sector’s integrity, designing and implementing a better governance framework for state-owned enterprises, and adopting business regulations conducive to rebuilding investor confidence, as well as expanding access to finance. In addition, reducing the burden of tax compliance and upgrading energy and transport infrastructure are key for a sustainably growing economy.

The war is resetting the economic structure, against a backdrop of longstanding challenges

Copy link to The war is resetting the economic structure, against a backdrop of longstanding challenges

The war creates new challenges

Russia's war of aggression against Ukraine has inflicted severe social damage and economic losses, straining the country's resilience and economic stability. By January 2024, the accumulated direct damages to infrastructure were estimated at USD 155 billion, or roughly 87% of 2023 GDP (Nivievskyi, Goriunov and Nagurney, 2024[1]). These damages span multiple sectors, including housing (USD 58.9 billion), infrastructure (USD 36.8 billion), industry (USD 13.1 billion) and energy production (discussed in Chapter 1), and agriculture (USD 8.7 billion). The full-scale invasion has damaged or destroyed over 167 200 housing units, at least 350 bridges, 25 000 kilometres of roads and 30% of the pre-war agricultural capital.

Economic losses, encompassing foregone income and disruptions in production and trade, are even more important, amounting to an estimated USD 500 billion by the end of 2023 (Nivievskyi, Goriunov and Nagurney, 2024[1]). The war has left Ukraine with over 139 000 square kilometres of mined land, further restricting agricultural production and posing long-term economic, security and environmental risks. As of early 2025, 11.5 million people have been internally (4.6 million) and externally displaced (6.9 million). The damage has been geographically uneven, with eastern regions bearing the bulk of the impact. Almost half of the firms in Donetsk, Kharkiv, and Luhansk have experienced war-related damage, compared to just 18% nationally (World Bank, 2023[2]). Along with Kherson and Zaporizhzhia, these regions account for 72% of the reported destruction (World Bank et al., 2025[3]). Prior to the war, these regions, strongly oriented toward heavy industries, contributed around 27% of Ukraine’s manufacturing output.

Figure 2.1. Recovery and reconstruction needs by sector, 2025-2035
Copy link to Figure 2.1. Recovery and reconstruction needs by sector, 2025-2035

USD billion

Recovery and reconstruction needs are estimated at USD 486 billion over the next ten years (World Bank et al., 2025[3]), implying an additional annual investment effort of more than 20% of GDP. Infrastructure, the social and the productive sectors each require roughly a third of the investments (Figure 2.1), with the largest shares for housing (USD 80.3 billion), transport (USD 73.7 billion), and commerce and industry (USD 67.5 billion). While Ukraine's transport infrastructure has adapted in the short term (with EU Solidarity Lanes and the Black Sea corridor), a strategic framework supported by international collaboration through platforms like the Common Interest Group for Transport in Ukraine (CIG4U) and the International Transport Forum (ITF), is needed to modernise transport links and develop a long-term recovery plan. Building the institutional and operation capacity to rebuild and adapt the infrastructure network will be critical as Ukraine's economy evolves, taking advantage of new opportunities in industries such as renewable energy, technology, and manufacturing. This transition also demands investments in infrastructure that enhance competitiveness, lower transaction costs, and reduce delays at border crossings.

Reconstruction has already begun. Over 8 700 planned or proposed projects were registered in the Digital Restoration EcoSystem for Accountable Management (DREAM) by the end of 2024. Despite the ongoing destruction of rebuilt assets, efforts adhere to the "build back better" principle, integrating green technologies and EU accession goals to ensure resilience and sustainability. In September 2024, the government launched a Single Project Pipeline for public infrastructure projects. Supported by DREAM, this system enables transparent submission, prioritisation, and evaluation of projects across national, regional, and community levels. By the end of 2024, 787 public investment projects worth more than USD 60 billion were registered in DREAM, with much of the funding provided by international organisations, including the International Bank for Reconstruction and Development (IBRD), the European Investment Bank (EIB), and the European Bank for Reconstruction and Development (EBRD).

The full-scale invasion has profoundly impacted the country’s industrial structure, causing damage and loss of capital stock and businesses (Figure 2.1), forcing a relocation of activity, and necessitating a reorientation towards new markets. Investment activity has declined significantly relative to the pre-2022 period, with the exception of the transport and storage sector and human health and social activities (Figure 2.2). In addition to long-standing structural impediments to doing business, specific wartime obstacles have surfaced as primary concerns for entrepreneurs, including the lack of personnel due to conscription and displacement, security and danger at work, electricity outages and decreases in demand (IER, 2024[4]).

Figure 2.2. Capital investments plummeted at the onset of the full-scale invasion
Copy link to Figure 2.2. Capital investments plummeted at the onset of the full-scale invasion

The loss of productive capacity in the wake of the full-scale invasion, including due to destruction and loss of control over territories, has led to a substantial drop in the volume of goods exports, notably for mining, metals and machinery equipment, while agricultural products proved more resilient thanks in part to the Black Sea Grain initiative and improved maritime security (Figure 2.3). Compared to goods exports, services exports decreased considerably less in the aftermath of the full-scale invasion but also fell in volume in 2022 and 2023. Poland and Romania have become the main overland export routes as Western Europe has become the main export destination. The shares of exported goods that crossed into Poland almost doubled (from 7% in 2021 to 13% in 2023), and into Romania quintupled (from 2% in 2021 to 10%), to a large extent reflecting shipments passing through these countries to other markets. Conversely, export shares of China (from 12% to 6.9%), Russia (from 4.3% in 2021 to 0% in 2023), Belarus (from 2.3% to 0%) and India (from 4.5% to 3%) dropped sharply.

Figure 2.3. Metals, minerals and industrial exports fell particularly following the full-scale invasion
Copy link to Figure 2.3. Metals, minerals and industrial exports fell particularly following the full-scale invasion

Before 2014, industrial activity was concentrated in the east, with the highest turnover (apart from Kyiv) in Dnipropetrovsk, Donetsk, Kharkiv, and Zaporizhzhia. These regions still accounted for over 25% of economic activity in 2021. However, the war has severely impacted them, destroying much of their heavy industry and forcing many businesses to relocate westward (Figure 2.4). The restructuring and reallocation of activity represent substantial policy challenges to ensure that the framework conditions are in place that enable businesses to establish new activities and supply chains.

Figure 2.4. The full-scale military invasion affected economic activity very unevenly across regions
Copy link to Figure 2.4. The full-scale military invasion affected economic activity very unevenly across regions

Low productivity and investment activity compound the recovery challenge

Labour productivity has been low and has lagged that of OECD and peer countries over the past decades (Figure 2.5, Panel A). Investment intensity in Ukraine has been insufficient to catch up with the capital accumulation in OECD countries, and the capital per worker gap with respect to peer countries has even widened (Figure 2.5, Panel B). Total factor productivity has shown little sign of convergence over the past two decades, underscoring continuous structural challenges, external shocks and human capital constraints (Figure 2.5, Panel C). The productivity gap can be partly attributed to structural features of the private sector, characterised by a large number of small firms and self-employed workers, informal activity and the legacy of old industries. The share in total production attributable to sole entrepreneurs rose from 4.6% in 2013 to 10.8% in 2021, partly driven by the tax system, notably the simplified tax regime provisions (this share dropped to 0.9% in 2022 and 1% in 2023 according to SSSU). Across OECD countries, large firms in the business sector tend to have higher labour productivity than smaller ones (OECD, 2024[5]).

Figure 2.5. Labour productivity has been low and diverging
Copy link to Figure 2.5. Labour productivity has been low and diverging

Relatively high shares of workers are in sectors with lower productivity. Agriculture, forestry and fishing accounted for more than 17% of employment before 2022 and 8% of GDP in 2023. The productivity gap between agriculture and other sectors in Ukraine is narrower than in other countries (Figure 2.6), underscoring a broad issue of weak productivity. While productivity in industry and service sectors has been increasing in OECD and peer countries, progress has stalled in Ukraine, especially in the manufacturing sector. The relocation and restructuring of business activity in the wake of the full-scale invasion by Russia could improve the allocation of human and physical capital and, thus, productivity prospects if accompanied by the right structural reforms. As productivity improves in industry and services, a natural shift of labour away from agriculture can be expected. However, Ukraine’s high agricultural employment share also reflects its natural endowments, whose economic potential is shaped not just by the quality of soil but also by legislative and regulatory factors, physical infrastructure, and technological capacities.

There is considerable scope to improve productivity in agriculture as well if modern technologies, finances and practices were used to supplement Ukraine’s fertile land. A moratorium on the sale of private land for commercial agricultural production led to the development of an unofficial market in such land, reflecting governance weaknesses and denying state and local budgets a potential source of revenue. Moreover, the lease market for agricultural land has been distorted by a 7-year minimum lease length, resulting in the emergence of an informal short-term lease market. This resulted in sub-optimal land use and denied small farmers a critical source of collateral to be able to access finance for investment. Against this backdrop, the ongoing land reform could play a critical role in driving productivity growth and investment.

Figure 2.6. Productivity has been weak across all sectors
Copy link to Figure 2.6. Productivity has been weak across all sectors

Value added per worker, constant USD 2015

The full-scale invasion has negatively affected the agricultural sector through multiple channels. First, large areas of agricultural land have been temporarily occupied or are unavailable due to the proximity to the frontline, mining and contamination. Second, the productivity of farmland in some areas has fallen through damage to soil cover caused by shelling and the movement of military equipment across farmland, damage to agricultural infrastructure such as drainage, irrigation and storage, the contamination or loss of water supplies previously abstracted for agriculture, and the destruction of agricultural machinery. Third, the ability to export agricultural products was compromised, particularly in 2022 and 2023, due to the Russian attacks on shipments of goods through the Black Sea, and on grain storage and port facilities. Other logistical challenges have also hindered exports directly into Europe by land.

A primary factor behind broad-based sluggish labour productivity has been the weak investment rate, lingering around ten percentage points of GDP below the OECD and peer country averages (Figure 2.7). Political and security instability and weak institutions have been eroding investors’ confidence. Even before the full-scale invasion in 2022, the temporary occupation by Russia of the Autonomous Republic of Crimea and the city of Sevastopol in 2014 created significant uncertainty, deterring both domestic and foreign investors. Despite recent improvements, concerns about corruption and a lack of transparent legal and regulatory frameworks continue to weigh on the investment climate and the cost of doing business (IER, 2024[4]).

Public investment rates in Ukraine, at around 4% of GDP, are comparable to those of OECD and peer countries; the primary cause of the investment gap lies in the relatively low levels of private investment. One contributing factor is the rising share of small firms. By 2021, micro and small enterprises accounted for almost 50% of total employment in Ukraine, a higher proportion than the average of 34% among OECD countries. This composition effect weighs on aggregate investment. Smaller firms are less likely to invest in modern production capacities, are less likely to be exporters, are less likely to innovate, and are less likely to provide training opportunities to their employees (OECD, 2023[6]). Empirical evidence further suggests that smaller firms in Ukraine tend to invest less than larger ones and that this gap has increased over the past decade (Figure 2.7, Panel B).

Figure 2.7. Investment has been weakening, partly driven by the increasing share of micro firms
Copy link to Figure 2.7. Investment has been weakening, partly driven by the increasing share of micro firms

Unleashing the potential of small firms and helping them scale up is a policy challenge Ukraine shares with OECD countries (OECD, 2022[7]; OECD, 2021[8]). However, numerous bottlenecks to firm growth in Ukraine are tied to its business environment, including cumbersome tax administration, the simplified tax regime, concerns about market contestability and competition, and limited access to finance. In this context, addressing policy biases that disincentivise firms to grow and understanding the widening investment gap between small and large firms can help inform policies aimed at boosting aggregate investment. Another feature holding back investment is the pervasive presence of poorly managed state-owned enterprises (SOEs). As of February 2024, the government managed a portfolio of more than 3100 SOEs, which consists largely of State Unitary Enterprises (~82%), majority-held Joint Stock Companies (JSC) and Limited Liability Companies (LLC) (~9%) and minority-held JSCs and LLCs (~4%), with ownership fragmented across 83 ministries, central executive bodies, and state agencies.

While over half of these SOEs are inactive or in the process of being liquidated, SOEs still retain a high share of assets in many sectors of the economy (Figure 2.8). Combined, in 2022, SOEs, including state-owned banks, accounted for 568 000 full-time employees (around 4% of total employment), 14% of national business assets) and generated a net income equivalent to 15% of GDP. These numbers do not include the over 14 000 municipally-owned enterprises (MOEs) (OECD, 2021[9]). While smaller, MOEs often operate less transparently than centrally-owned SOEs because their governance structures are often informal, and financial disclosure requirements are not consistently enforced. Conflicts of interest are common, as local council members frequently influence decision-making, appoint executives, and even serve on supervisory boards, sometimes without clear independence.

While some SOEs are profitable, their pre-2022 financial performance was significantly below that of companies operating in the private sector. Lower returns on equity and assets, smaller profit margins, and lower revenue generation per employee all point to operational inefficiencies. SOEs also tend to be more highly indebted than their counterparts in the private sector. The root causes of these inefficiencies vary but historically include a combination of excessive government and political interference in SOE operations, poor management, burdensome public service obligations and corruption (OECD, 2021[9]). Empirical evidence for Ukraine suggests that private firms in industries with a high SOE concentration invest less than those in industries without direct SOE competition (Cevik, 2020[10]).

Box 2.1. Assessing the relationship between firms’ investment and SOEs’ presence

Copy link to Box 2.1. Assessing the relationship between firms’ investment and SOEs’ presence

The analysis uses the ORBIS panel dataset with individual firm balance sheet data, focusing on unconsolidated accounts to avoid biases from international subsidiaries. Following Hanappi, Millot and Turban (2023[11]), the analysis excludes extreme values of fixed assets (below the 1^st or above the 99^th percentile), adjusts for currency and inflation, and restricts observations to those available since 2002. Firm-level net investment rates (IR) are defined as follows:

$I R_{i t} = \frac{F A_{i, t} - F A_{i, t - 1}}{F A_{i, t - 1}}$ ,

where $i$ indicates individual firms and $t$ refers to the change in fixed assets (FA) for the current year divided by the previous year’s level of fixed assets. To investigate whether a higher presence of state-owned enterprises (SOEs) is correlated with lower private investment, a panel regression analysis is performed:

${I R}_{i t} = α + β_{1} S O E_{c s} + β_{2} l o g {(s a l e s)}_{i t} + β_{3} ∆ G D P_{c t} + β_{4} ∆ E m p l_{i t} + a g e_c a t_{i t} + μ_{s} + μ_{c} + μ_{t} + ϵ_{i t}$

where i refers to an individual firm, c to the country and s to the sector. Years are indicated by t. SOE_cs represents the share of fixed assets held by SOEs among the total fixed assets held by all firms within a sector in a country, averaged over time.

	(1)	(2)	(3)	(4)	(5)	(6)
SOE share	-0.579***	-0.503***	-1.483***	-1.440***	-1.091***	-1.043***
	(0.139)	(0.142)	(0.247)	(0.250)	(0.266)	(0.268)
Log(sales)	0.041***	0.041***	0.047***	0.047***	0.051***	0.051***
	(0.005)	(0.005)	(0.005)	(0.005)	(0.006)	(0.006)
∆GDP	0.043***	0.043***	0.042***	0.042***	0.042***	0.042***
	(0.010)	(0.010)	(0.010)	(0.010)	(0.010)	(0.010)
∆Employment	0.226***	0.226***	0.221	0.221***	0.197***	0.197***
	(0.028)	(0.028)	(0.029)	(0.029)	(0.030)	(0.030)
Mature (5<= firm age <10)	-1.212***	-1.212***	-1.207	-1.207***	-1.174***	-1.174***
	(0.091)	(0.091)	(0.090)	(0.090)	(0.092)	(0.092)
Old (firm age >=10)	-1.598***	-1.597***	-1.603	-1.603***	-1.567***	-1.567***
	(0.098)	(0.098)	(0.098)	(0.098)	(0.100)	(0.100)
SOE dummy		-0.153***		-0.172***		-0.175***
		(0.038)		(0.046)		(0.044)
Adj. R²	0.01	0.01	0.01	0.01	0.01	0.01
N	31 361 696	31 361 696	29 261 565	29 261 565	20 443 561	20 443 561

Note: Column (1) and (2) display results for the full sample of the business economy (except agriculture and public services), column (3) and (4) show results when natural monopoly sectors are dropped (these are the following: D - Electricity, gas, steam and air conditioning supply; E – Water supply, sewerage, waste management and remediation activities; H – Transportation and storages). Column (5) and (6) show results for services sectors only (hence, the following sectors are dropped: B – Mining and quarrying; C – Manufacturing; D – Electricity, gas, steam and air conditioning supply; E – Water supply, sewerage, waste management and remediation activities; F – Construction).

Source: Orbis (dataset) & OECD calculations.

New empirical evidence based on cross-country firm-level data confirms that a high concentration of sector assets in SOEs, compared to the average for that sector across countries, reduces firm-level investment rates (see Box 2.1). The results suggest that outside natural monopolies such as energy and transport, a one percentage point increase in the share of assets held by SOEs reduces investment rates by almost one percentage point. This effect is partly due to SOEs investing less and partly because private firms tend to invest less when the proportion of assets controlled by SOEs is relatively high, suggesting that SOE dominance crowds out private investment.

Figure 2.8. State-owned entities account for a sizeable share of fixed assets in many sectors
Copy link to Figure 2.8. State-owned entities account for a sizeable share of fixed assets in many sectors

Fixed assets held by SOEs - Share of the sector’s total fixed assets, 2019-2021 average

Combined, low productivity and weak investment rates have undermined capital accumulation for several decades. While many peer countries have embarked on a convergence process, Ukraine’s stock of productive capital has continued to diverge over the past 30 years (Figure 2.9). Gaps are particularly large for the most productive sectors of investment, such as machinery and equipment.

Figure 2.9. Ukraine’s productive capital stock lags behind OECD and peer countries
Copy link to Figure 2.9. Ukraine’s productive capital stock lags behind OECD and peer countries

Capital stock per capita, USD 2017 PPP

The large informal sector weighs on aggregate investment and productivity

A significant part of economic activity is undeclared. Informality results from weaknesses in institutions, inefficient public administration, high fiscal burdens and inconsistent regulatory enforcement. Estimates for the share of the shadow economy range from 25% (National Bank of Ukraine) to more than 45% (World Bank, Figure 2.10), and it is unclear to what extent official GDP might be underestimated. However, household consumption, electricity consumption, internet use, and poverty indicators suggest a higher GDP per capita than officially reported before the war. While the informal economy provides employment opportunities to many, particularly during times of crisis, it presents serious challenges for sustainable growth and development. Informal firms generally operate with lower productivity due to limited access to finance, markets, and necessary infrastructure, which restricts their capacity to grow and innovate (Ohnsorge and Yu, 2022[12]). Across countries, informal or undeclared workers tend to have few opportunities to upgrade their skills or move to higher productivity work (OECD, 2024[13]).

In Ukraine, under-declared workers are more at risk of poverty later in life due to lower pension accumulations (Chapter 1). Some businesses pay a portion of their employees’ salaries in cash to circumvent social security contributions or request them to register as ‘private entrepreneurs’ to reduce the tax burden. Others simply underreport the number of employees altogether. The relatively high volume of transactions conducted in dollars might also indicate a large shadow economy. Since the start of the war, mobilisation laws and limits on labour inspections have created further incentives for informal employment arrangements. This, in turn, reduces overall labour productivity and slows the accumulation of both physical and human capital.

Additionally, firms that fully declare their activity and comply with the standard regulatory and taxation systems are at a competitive disadvantage vis a vis those that do not. According to the latest World Bank Enterprise Survey (2019), roughly 50% of Ukrainian firms identify practices of competitors in the informal sector as a considerable constraint, one of the highest share anywhere in the world and significantly higher than in peer countries. Even among the pressures of the full-scale invasion, firms report informal employment to be a barrier to hiring workers (Institute for Economic Research, 2024[14]). At the same time, survey results suggest a culture of tolerance toward the informal sector (Figure 2.10).

Figure 2.10. Informality is widespread
Copy link to Figure 2.10. Informality is widespread

Across countries, higher shares of informal activity are associated with lower levels of income and productivity. This relationship is likely to reflect the weaknesses in the business environment discussed through this Chapter, such as the rule of law, product market regulations and tax policy and administration (Andrews, Caldera Sánchez and Johansson, 2011[15]). Addressing the factors that contribute to the shadow economy in Ukraine will be crucial to unlocking Ukraine’s investment potential and enhancing productivity. Measures aimed at improving the rule of law, reducing the cost of formalisation, and increasing access to finance and education could encourage businesses to transition from the informal to the formal economy. By doing so, Ukraine could enhance labour productivity, increase fiscal revenues, and create a more conducive environment for both domestic and foreign investment, driving long-term economic growth.

Export activity and integration in global value chains are still nascent

Ukraine’s per capita exports are weak compared to neighbouring EU countries (Figure 2.11, Panel A). While the increase in per capita exports between 1995 and 2020 was tenfold in Romania and Poland, it was less than fourfold in Ukraine. Integration in regional and global value chains (GVC) is weak. The share of foreign value added in Poland’s gross exports almost doubled from 14% in 1995 to 29% in 2020 (Figure 2.11, Panel B), while in Ukraine it declined. Relatedly, the share of medium- and high-tech exports in total manufacturing exports fell from around 40% in 2014 to 32% in 2021 in Ukraine (against 60% in peer countries and 55% in the OECD on average in 2021). Integrating into global value chains allows for broadening the market, increasing openness, and benefiting from knowledge spillovers and efficiency gains (Verhoogen, 2023[16]).

Figure 2.11. Per capita exports and integration in global value chains lag behind
Copy link to Figure 2.11. Per capita exports and integration in global value chains lag behind

A relatively high share of Ukraine’s domestic value added in its exports is subsequently re-exported by other countries (Figure 2.11, Panel C). While a strong forward integration indicates Ukraine’s contribution to further processing and value creation in other countries, it positions the country rather upstream in global value chains, often related to supplying raw materials and primary materials. This reflects the country’s resource endowment and production capacities relative to its trading partners. In many cases, these exports capture lower shares of the overall final value generated. There are a number of notable exceptions. One example is ICT exports, whose share in total services exports rose from around 14.5% in 2014 to over 40% in 2022 and 2023 in Ukraine (against 13% in peer and OECD countries).

Items with low product complexity dominate Ukraine’s goods exports (Figure 2.12, Panel A). Goods exports’ economic complexity declined over the past two decades, in contrast to most peer countries. Ukraine is specialised in products that are less well related to more complex products such as chemicals or machinery (Figure 2.12, Panel B). Overall, the complexity of products has been shown to be strongly correlated to firms’ productivity growth (Dieppe, 2020[17]; Verhoogen, 2023[16]; Basile and Cicerone, 2022[18]). At the level of the overall economy, higher levels of economic complexity are associated with stronger economic growth (Hidalgo and Hausmann, 2009[19]; Udeogu, Roy-Mukherjee and Amakom, 2021[20]; Çokgezer and Sadiku, 2023[21]). Much of the industry that produced more complex products was concentrated in some areas of the Donetsk and Luhansk regions, and thus has been significantly disrupted since 2014 due to the Russian invasion. This may help explain the further decline in economic complexity over the past decade. Cross-country analysis suggests that improving the framework conditions, such as improving the rule of law, reducing regulatory burdens, ensuring adequate physical infrastructure and supporting innovation, fosters increasing economic complexity (Sakiru, Gil-Alana and Gonzalez-Blanch, 2022[22]).

Figure 2.12. Economic complexity of exports is low
Copy link to Figure 2.12. Economic complexity of exports is low

Improving business framework conditions

Copy link to Improving business framework conditions

Since the start of the full-scale invasion, surveys of businesses indicate that major concerns regarding the business climate have shifted towards issues like logistics for accessing supply chains and markets, energy supply reliability, staffing operations, and raising working capital (Kuziakiv, forthcoming[23]). While these pressing challenges are directly related to the ongoing war, many are compounded by pre-existing structural weaknesses. Ensuring transparent and reliable rule of law, regulation to address market failures while minimising the cost to businesses, and a business tax system that minimises distortions while generating the revenues required to provide public goods and services can help mobilise private domestic investment and foreign investment. Promoting contestable markets and strengthening SOE governance to enhance efficiency and accountability can further improve the business climate.

Reducing corruption and strengthening the rule of law

Anti-corruption institutions and judicial integrity are improving from low levels

Despite improvements over the last decade, high perceptions of corruption and the weak rule of law, arbitrary law enforcement and the non-enforcement of court decisions, as well as compromised judicial independence continue to undermine investors’ confidence and a level playing field for businesses (Figure 2.13; (World Justice Project, 2024[24]); (Ministry of Justice, 2024[25]). Public intolerance of corruption remains high. Over 92% of respondents in a 2023 survey identified corruption as a serious or very serious problem, an increase of almost five percentage points compared to 2022 (InfoSapiens, 2023[26]). Among entrepreneurs, this share even increased by more than ten percentage points, from 77% in 2022 to 88% in 2023. Top-level political corruption is now perceived to be even higher than before the full-scale invasion, while the perception of business corruption returned in 2023 to its 2021 level after a decrease in 2022. According to another survey, perceived corruption in 2024 is most pervasive in customs, the parliament and the national government (National Democratic Institute, 2024[27]). The National Agency on Corruption Prevention (NACP) identified law enforcement, customs, control of economic activities and border control as the domains with the highest corruption risks.

Figure 2.13. Corruption perceptions in Ukraine remain high despite recent improvement
Copy link to Figure 2.13. Corruption perceptions in Ukraine remain high despite recent improvement

Ukraine’s new anti-corruption institutions (see Box 2.2) have been effective in investigating and prosecuting high-level corruption cases, although there remain concerns about their independence and resources. The NACP oversees, coordinates and enforces anti-corruption policies (OECD, 2024[28]). The National Anti-Corruption Bureau of Ukraine (NABU) is a stand-alone body with a clearly defined mandate to investigate high-level corruption cases. The external audit of the NABU was ongoing in April 2025. Its subsequent report can inform and prioritise the implementation of concrete actions to strengthen the institution and build more capacity.

Box 2.2. Ukraine’s anti-corruption infrastructure

Copy link to Box 2.2. Ukraine’s anti-corruption infrastructure

Ukraine’s anti-corruption infrastructure, established after the 2013-2014 Revolution of Dignity, is a complex network of institutions designed to combat corruption at various levels. The National Agency on Corruption Prevention (NACP) develops and implements anti-corruption policies, monitors the asset and interest declarations of public officials, oversees political parties' finances and is developing the lobby register to implement the Law on Lobbying from 2024. The National Anti-Corruption Bureau of Ukraine (NABU) is the primary investigative body responsible for detecting and investigating high-level corruption cases.

The Specialized Anti-Corruption Prosecutor’s Office (SAPO) is responsible for prosecuting criminal and corruption cases investigated by NABU in court. The High Anti-Corruption Court (HACC), a specialised court started operating in 2019, is a cornerstone of this framework. It has exclusive jurisdiction over high-profile corruption cases investigated by the NABU and prosecuted by the SAPO, as well as civil confiscation lawsuits against unjustified assets.

The High Qualification Commission of Judges (HQCJ) is responsible for selecting and evaluating candidates for judicial positions. The High Council of Justice (HCJ) has a role in appointing candidates for judicial positions and is mainly responsible for disciplinary cases and the dismissal of judges. The HCJ can reject the HQCJ’s nominations for a limited number of reasons. The Public Council of International Experts (PCIE), composed of professionals from various legal backgrounds, recommended by the OECD, the EU Delegation to Ukraine, and the European Anti-Fraud Office (OLAF), plays a crucial advisory role in the selection of judges for the HACC, ensuring that the candidates meet the highest standards of integrity and professional competence. The PCIE can block candidates from serving on the court based on integrity concerns.

In addition to these anti-corruption bodies, the ESBU was established in 2021 to detect and combat economic crimes such as tax evasion, smuggling, and illegal financial activities. Although not a dedicated anti-corruption agency, the ESBU has limited mandates in corruption and civic confiscation cases, which carry significant implications for the fight against corruption.

Source: “Review of Anti-Corruption Reforms in Ukraine under the Fifth Round of Monitoring: The Istanbul Anti-Corruption Action Plan” (OECD, 2024[28]).

In the judicial sector, the selection of new members of the High Council of Justice (HCJ, see Box 2.2), underpinned by thorough reviews in the Ethics Council, also represents significant progress towards best practices (OECD, 2024[28]). Unified integrity indicators were adopted in December 2024, although there are concerns that some of these indicators, such as the so-called perpetual integrity provision, which provides that current HCJ members are automatically deemed to have integrity when participating in future selection processes (DEJURE, 2025[29]). Removing the perpetual integrity provision would better align Ukraine’s arrangements with most OECD practices. So far, the role of the Public Integrity Council (PIC) in integrity assessments has remained limited, raising concerns about the thoroughness and transparency of the integrity evaluations. The PIC is composed of key civil society organisations advocating for anti-corruption and integrity-strengthening reforms, and better integrating its recommendations and advice would contribute to improving perceptions of institutional integrity (OECD, 2024[28]). Further progress will be required to address long-standing challenges, such as enhancing transparency in court adjudications, implementing various action plans to address non-enforcement of court decisions, and combating corruption within the judiciary. Developing alternative dispute-resolution mechanisms can help alleviate some of these problems.

The workload of the High Anti-Corruption Court (HACC) has been compounded by the influx of cases related to the confiscation of assets belonging to Russian and Ukrainian collaborators following the Russian invasion. The mounting workload poses a risk of delays in case processing, potentially allowing some individuals accused of corruption to evade justice due to the expiration of statutes of limitations. In September 2023, the HCJ increased the number of HACC judges, prompting a competition for vacancies, which faced significant delays but was expected to be concluded in 2025. Going forward, the role of the Public Council of International Experts in the selection process of judges for the HACC should be sustained beyond its current mandate, which was extended to May 2026. Ukraine should continue its efforts to combat money laundering and foreign bribery and enhance asset recovery by fully implementing a functional corporate liability framework and aligning legislation with the OECD Anti-Bribery Convention and OECD standards, such as the recommendation on Further Combating Bribery of Foreign Public Officials in International Business Transactions (OECD, 2021[30]). The ambitious state anti-corruption programme, managed and overseen by the NACP, covers many of these recommendations. The parliament adopted laws on amendments to the Criminal Code of Ukraine, the Criminal Procedure Code of Ukraine, and the Tax Code of Ukraine to introduce international tax standards in combating bribery of foreign officials. Overall, as of February 2025, 402 of the 1146 identified measures of the state anti-corruption programme were partially or fully implemented, and a further 286 measures were in progress. Ensuring this programme is completed and reforms are implemented would contribute to reducing corruption risks.

The Economic Security Bureau (ESBU) was established in 2021 and is responsible for detecting and combating economic crimes, such as tax evasion, smuggling, and illegal financial activities. However, concerns over corruption and collusion have constantly challenged its effectiveness. In June 2024, parliament passed a new law to foster the ESBU’s independence and rebuild public trust. Notably, the reform includes a more transparent and competitive process for selecting the ESBU’s leadership by creating a special commission, with significant involvement of international experts. This process of shortlisting two candidates to be submitted to the Cabinet of Ministers for final selection was ongoing in April 2025. This reform could significantly strengthen Ukraine’s anti-corruption efforts and tax compliance and should be implemented swiftly.

Public integrity frameworks are improving

The government aims to adhere to the OECD Recommendation on Public Integrity (OECD, 2017[31]) by 2026. Fulfilling the criteria will require sustained efforts to demonstrate a strong political commitment to enforcing integrity by establishing legal and institutional frameworks and setting high ethical standards for public officials. The principles notably advocate ensuring a clear mandate and capacity for government bodies that define, support and enforce public integrity.

Ukraine has made considerable progress in developing strategies aimed at enhancing public integrity, particularly through the Anti-Corruption Strategy for 2021-2025 and the State Anti-Corruption Programme for 2023-2025 (see above). Some critical gaps remain in the strategic framework, undermining its overall effectiveness. Key areas, such as public financial management (PFM), internal control, and risk management, lack comprehensive strategic objectives focused on mitigating public integrity risks. Despite addressing some elements of financial mismanagement and fraud, the absence of targeted measures in these domains hampers the broader fight against corruption.

Figure 2.14. While public integrity plans and processes are stronger than in many OECD countries, evaluation lags
Copy link to Figure 2.14. While public integrity plans and processes are stronger than in many OECD countries, evaluation lags

Despite rapid progress, implementation rates of the various anti-corruption measures are slightly lagging behind OECD and peer averages (Figure 2.14, Panel A). Furthermore, while monitoring reports for the Anti-Corruption Programme are available, they fail to include management recommendations for relevant public bodies and agencies. To ensure effectiveness, the 2026-2030 public integrity strategy should be designed based on an evaluation of the current one and adopted promptly with broader governmental engagement.

While Ukraine has established internal audit units across public institutions, challenges remain in ensuring their full independence and capacity (Figure 2.14, Panel B). The lack of direct and unrestricted access for auditors to senior management and political staff, as well as insufficient staffing and professional certification among auditors, weakens audit effectiveness. The Ministry of Finance now has a certification scheme in place, which could help to gradually increase the number of certified auditors. Introducing mandatory cooling-off periods to prevent conflicts of interest and strengthening the audit workforce through certification programs are necessary steps to bolster audit independence and professionalism (OECD, 2025[32]).

Ukraine's audit framework is complicated by the overlapping mandates of the Accounting Chamber and the State Audit Service. The differing approaches, rooted in the Accounting Chamber’s recent creation and the State Audit Service’s Soviet-era compliance tradition, lead to inefficiencies and gaps in performance auditing. Recent extensions to the mandate of Ukraine’s Accounting Chamber are welcome and reflect the institution’s recognised expertise in assessing corruption risks. Establishing clearer management accountability for responding to internal control weaknesses and ensuring comprehensive documentation of risk assessments, including fraud risk profiles, would significantly improve Ukraine's capacity to manage risks effectively.

Ukraine’s accountability framework in public administration shows notable efforts to enhance transparency, access to information, and conflict-of-interest management. However, significant gaps remain, such as the lack in oversight of municipal decision-making, the weak enforcement of sanctions for non-compliance with access to public information laws and conflict-of-interest provisions (Figure 2.14, Panel C). Although protocols exist, sanctions are inconsistently applied. It is vital to ensure that monitoring of access to information is effective and sanctions are applied. Improved coordination between supervisory bodies and the judiciary would contribute to applying penalties swiftly and transparently.

Clear and robust standards of conduct for key political figures, including ministers, members of parliament, and political appointees, are not in place. A draft of the Code of Ethics for members of parliament was registered as a draft law on 30 December 2022 but has yet to be adopted. Additionally, the framework regulating lobbying and political finance is not yet fully aligned with the OECD recommendation on Transparency and Integrity in Lobbying and Influence (OECD, 2024[33]). While Ukraine has made progress with the adoption of the Law on Lobbying, its enactment was postponed to September 2025. Accelerating the implementation of this law, along with introducing clear cooling-off periods for public officials transitioning into lobbying roles, would help reduce conflicts of interest. Establishing the intended transparency register and ensuring the effective enforcement of lobbying regulations through robust sanctioning mechanisms will be required for the standards to be effective.

Improving regulatory governance

An efficient and transparent regulatory system for the business sector is crucial for improving Ukraine’s investment and business climate. While demonstrating progress in recent years, the business regulatory environment still presents significant hurdles to investment, export activities and productivity growth. Cumbersome bureaucratic procedures, inconsistent enforcement, and a lack of transparency create uncertainties for businesses and provide a fertile ground for corruption. Addressing this will require reviewing and reforming existing regulations and their enforcement. An interministerial working group reviewed 1323 regulatory instruments, recommending the abolition of 456, amendment or digitalisation of 584, and retention of 283. By September 2024, 122 instruments had been abolished. The group also initiated an analysis of business inspections to reduce administrative burdens and implement risk-based inspections.

Important improvements have been made in some areas, offering a model for other areas of regulation. The government has adopted a comprehensive regulation establishing the ePermit platform, which aims to simplify the work of entrepreneurs, reduce corruption risks and ultimately have a positive impact on economic development by digitising six initial permits and licenses, as well as procedures for businesses to appeal against the actions of the authorities in terms of licensing. Additionally, a new law effective from September 2024 allows economic activities based on free declaration, bypassing permits and licences, except for high-risk areas during martial law. A law effective from November 2024 aligned regulations on permitting and licensing with broader administrative procedures, ensuring greater consistency and predictability in regulatory processes. These changes bring national legislation closer to European standards.

Regarding new regulations, the State Regulatory Service (SRS) is a central executive body responsible for preventing the adoption of ineffective regulations and minimising state interference in business activities. While the SRS has made progress in regulatory policy development, the lack of mandatory oversight, weak external controls, and the absence of legal consequences for non-compliance have created a fragmented and inconsistent regulatory environment (Durman and Drozhyn, 2020[34]). A law on public consultations was approved in October 2024 and will take effect 12 months after martial law is lifted. The law establishes a legal mechanism for public consultations in the formation of state policy and addressing local issues, aiming to foster more coordinated, efficient, and effective political decision-making. Bringing forward its application would support regulatory quality. More stakeholder involvement can improve the quality of regulations, for example, by helping design regulations in a way that reduces compliance costs and avoids unintended burdens, while substantive stakeholder engagement can build understanding and trust in the regulations and their enforcement (OECD, 2012[35]).

Strengthening regulators’ accountability mechanisms and promoting data-driven decision-making while safeguarding regulatory independence would help create a stable, efficient framework that supports economic growth and innovation. Improving access to and interaction among the different registers would enhance the monitoring of the costs and benefits of regulations (BRDO, 2023[36]). A harmonised evidence base would also enable innovative forms of data analysis, including AI-based solutions. A central gateway could give rise to mainstreaming some guiding principles to new regulations, such as economic efficiency, social inclusiveness or environmental sustainability. To this extent, the planned regulatory portal to be set up by the State Regulatory Service (SRS) could promote transparency, accountability, and independence in the design and implementation of regulations.

Raising the efficiency of the tax system

Corporate taxation affects business investment, although the elasticities are very heterogeneous across countries, firm sizes and types of tax instruments (Hanappi, Millot and Turban, 2023[11]). Prior to 2022, Ukraine’s corporate income tax collections were near the average for OECD countries as a share of GDP (3%) and slightly below the OECD average as a share of total revenues (10%). Ukraine’s simplified tax regime is designed to reduce compliance costs and support small businesses, but it also creates some challenges for the broader tax system. Eligibility is wider than in most OECD countries (Bulman, 2025, forthcoming[37]), and its design is not aligned with good practice (Mas-Montserrat et al., 2023[38]). The system encourages businesses to stay small or split operations to remain eligible, reducing overall fiscal revenues and concentrating corporate tax collection on larger enterprises (Bulman, 2025, forthcoming[37]; Anhel, Baskov and Kuziakiv, 2023[39]). Additionally, the simplified tax regime is subject to widespread abuse, as it allows self-employed individuals to pay a significantly lower tax rate than the standard personal income tax rate.

The number of taxpayers opting for the simplified regimes approached 1.8 million in 2023, 14.6% more than in 2017 (Ministry of Finance, 2023[40]). Reports suggest that this increase reflects the simplified regimes’ attractiveness and may reflect, in part, businesses splitting or closing and reopening as new businesses to remain eligible and employees declaring themselves as self-employed and benefit from the lower tax rates of the simplified regimes. This has concentrated corporate income tax collections onto larger enterprises and state-owned enterprises. In addition, Ukraine’s transfer pricing rules do not apply to transactions between resident companies, meaning that profits of an entity subject to CIT (at 18%) can be shifted to a related company with turnover taxed at 3% (or 5% depending on VAT taxes), providing tax relief in some cases. Companies are also able to switch from one system (profits subject to CIT) to the other (tax on turnover). Therefore, in loss-making years and in years where profits are low, a firm may elect to be subject to CIT and pay no or low tax rather than a positive (higher) amount under the turnover tax.

Ukraine’s National Revenue Strategy aims to reduce the scope of these tax regimes and shift businesses to the standard tax system, including by enforcing VAT registrations, using electronic cash registers, and abolishing exemptions from record-keeping. The reforms seek to improve the overall tax system's integrity and transparency, fostering greater confidence among taxpayers and encouraging more businesses to formalise their operations. Adopting a risk-based approach to tax audits that prioritises audits and enforcement actions based on the likelihood of non-compliance or tax evasion, would make better use of the tax administration resources, encourage voluntary compliance and reduce unnecessary burdens on compliant taxpayers. The establishment of clear guidance on tax policies and transparent dispute-resolution mechanisms could further improve the business environment.

Heavy paperwork and reporting requirements make complying with VAT more burdensome in Ukraine than in most OECD countries (Figure 2.15) and discourage registering in the VAT system. 48% of entrepreneurs report that VAT invoices are not being processed swiftly (Samaieva, 2023[41]). Broader tax administration inefficiencies, such as extensive documentation requirements and delays in processing tax-related paperwork, further exacerbate compliance burdens. Businesses frequently struggle with rigid accounting rules, such as the requirement for printed and signed ‘Statements of Acceptance’ for service contracts, increasing administrative overhead and legal risks (CASE Ukraine, 2022[42]; Gvozdiy and Bublichenko, 2022[43]). These issues contribute to a high volume of tax-related disputes, with tax administration complaints making up 50% of cases at the Business Ombudsman Council as of mid-2024, 90% of which are won by the claimants (Business Ombudsman Council, 2021[44]; Dligach, 2022[45]). Reforming tax administration processes, aligning reporting standards with OECD practices, and developing effective dispute-resolution mechanisms could significantly ease compliance costs and reduce legal uncertainty.

Figure 2.15. Complying with VAT is highly burdensome
Copy link to Figure 2.15. Complying with VAT is highly burdensome

Time taken to prepare, ﬁle and pay the main consumption tax, hours per year, 2019

Accelerating tax digitalisation can reduce the administrative burden of tax compliance and support public revenues, aligning with broader public sector digitalisation. However, infrastructure limitations have hindered progress, and implementation has fallen short of expectations (Marchenko, 2022[46]). Efforts to strengthen the use of digital cash registers have supported VAT revenues in several OECD countries with a legacy of large VAT collection gaps, such as Greece and Italy. Some innovative solutions exist. For instance, the tax administration in the Netherlands has built software that selects refund requests for manual inspection, allowing others to be electronically processed automatically. The software implements business rules and relatively simple statistical procedures and helps auditors undertake the manual inspections. The administration regularly interacts with end-users to continuously improve the system (OECD, 2023[47]).

Developing competitive and supportive network sectors

Eliminate distortions to build more efficient energy markets

The ongoing war has severely damaged Ukraine's energy infrastructure, reducing the dispatchable capacity (excluding wind and solar PV) of its electricity system from 37 GW to, during some periods, below 10 GW, including 5 GW returned to the system thanks to a repair campaign ahead of the 2024/25 winter (discussed in Box 1.2 in Chapter 1). It has also highlighted deep-rooted structural issues within the energy market. Total damages to Ukraine’s energy sector up to the end of 2024 were estimated at USD 20.5 billion, while revenue lost due to reduced capacity and demand at over USD 72 billion (World Bank et al., 2025[3]). The Fourth Rapid Damage and Needs Assessment valued a complete restoration of the energy sector to contemporary standards at USD 68 billion, of which the private sector could be expected to fund over USD 40 billion.

The challenge of rebuilding Ukraine’s energy infrastructure is exacerbated by a lack of accurate price signals, primarily caused by government-mandated price subsidies, hampering incentives to modernise infrastructure, integrate renewable energy, and encourage energy efficiencies. While many universal fossil-fuel subsidies were largely eliminated and replaced by better-targeted support programmes, challenges remain. A key price-distorting factor is the Public Service Obligation (PSO) mechanism, which subsidises electricity tariffs for households to ensure affordability (IEA, 2024[48]) (Petkova, Michalak and Oharenko, 2023[49]). Subsidised household tariffs disconnect consumer prices from actual production costs, preventing the development of a competitive electricity market. This misalignment weakens incentives for energy conservation and efficient consumption. Price caps also obstruct deeper integration with the EU market by hindering market coupling (OECD, 2023[50]).

The PSO are financed by state-owned nuclear power producer Energoatom and hydropower producer UkrHydroEnergo (UHE). Both companies sell all electricity generated on the market but must compensate universal service supplier companies financially for the difference between the wholesale purchase price and the regulated PSO price for residential consumers. They transfer the determined compensation to the market operator, the Guaranteed Buyer (GB), which, in turn, distributes compensations to regional universal services suppliers. As a result, Energoatom and UrkHydroEnergo had to report lower profits, and the government suffered fiscal losses from lower VAT collection. Neither company obtains any compensation from the budget. In 2023 alone, Energoatom paid UAH 128 billion (EUR 3.2 billion) to the GB while UHE paid UAH 23.7 bn (EUR 0.6 bn). Thus, total electricity price subsidies are estimated at EUR 3.8 bn or 2.3% of the GDP in 2023.

Although the electricity price for households was increased from UAH 2.64/kWh to UAH 4.32/kWh (USD 0.10/kWh) in 2024, it covers only around half of the costs of electricity supply to residential customers. By comparison, the corresponding price for small business customers in Kyiv is UAH 8.96/kWh (USD 0.22/kWh). Similarly, gas price subsidies for residential consumers and district heating are estimated at EUR 2.9 billion (1.7% of GDP) and EUR 1.7 billion (1.0% of GDP), respectively, in 2023. The government recognises the scale of the price subsidises and negative economic and fiscal implications. The government plans to adopt a roadmap for the gradual liberalisation of gas and electricity markets within six months after the end of martial law while allocating adequate and well-targeted resources to protect vulnerable households (International Monetary Fund, 2024[51]). The existing Housing Utility Subsidy (HUS) scheme, developed to support tariff adjustments in the late 2010s, can be leveraged to insulate vulnerable households from tariff increases. Although the HUS has seen notable improvements since 2018, it could be further refined by enhancing the targeting of poorer households and decoupling transfers from actual energy consumption (Alberini and Umapathi, 2024[52]).

Strengthening price signals can help improve energy efficiency and better match demand and supply. Manufacturing and services businesses consume considerably more energy per unit of value added than OECD and peer countries (Figure 2.16). Complementing stronger price signals with measures to help users reduce their demand can support the adjustment. Many tools are available to provide energy savings, including i) meters and smart technologies for consumers and businesses, ii) new energy-saving technologies (batteries, accumulators), iii) increasing environmental awareness of the population, and iv) heightening standards of energy efficiency for new buildings and renovation of older ones (Hoeller et al., 2023[53]). For instance, varying tariffs can incentivise reducing consumption and greater production at peak times through batteries and changing consumption patterns, which can help the power system operate more efficiently and reliably, and lower requirements for new capacity (IEA, 2024[48]).

Figure 2.16. Energy efficiency lags behind peers
Copy link to Figure 2.16. Energy efficiency lags behind peers

Energy consumption per value added by sector, MJ/USD, 2015 PPP

Legal reforms, implemented in 2023 and 2024, intended to help develop distributed energy resources (decentralised generation capacity). These allow electricity consumers to self-generate and sell excess electricity to the grid (IEA, 2024[48]). The amendments encourage biomethane and renewable energy production by establishing guarantees of origin issued by the National Energy and Utilities Regulatory Commission. Additionally, in 2024, the parliament approved two laws that exempted the imports of equipment for electric generators, wind and solar generation, and powerful accumulators from customs duties and value-added tax. These measures provided incentives to install distributed energy resources. The total capacity of distributed gas generation plants connected on 31 December 2024 reached 967 MW, or approximately one-tenth of generating capacity, of which 835 MW was installed in 2024.

Ukraine’s renewable energy potential is significant but largely untapped. The government aims to double the share of renewables in total electricity generation to around 30% by 2030, as outlined in its National Renewable Energy Action Plan (NREAP 2030) and National Energy and Climate Plan (NECP 2030). The accumulated debt that the Ukrainian state-owned transmission system operator (Ukrenergo) owes to renewable energy companies deters new entries. The debt originates from the government's historical underfunding of support payments promised to renewable energy producers under the Green Tariff scheme. These support payments were meant to be financed through a transmission tariff but were inadequately funded due to government-imposed limitations on energy price increases, combined with market disruptions caused by the ongoing conflict. Consequently, Ukrenergo has accumulated significant unpaid obligations (as of October 2024, totalling UAH 32.2 billion or EUR 0.74 billion) owed to renewable energy companies that have already built and operate renewable installations under guaranteed contracts. This debt is reported to undermine investor confidence in Ukraine's renewable energy market (Mykhailenko and Piddubnyi, 2024[54]).

A first step in addressing the legacy debt was made in early 2025 when amendments to the electricity law entered into force, stipulating that Ukrenergo uses excess income from 2023 and 2024 to settle UAH 10 billion of the accumulated debt to renewable energy producers. Going forward, establishing transparent, predictable transmission tariff forecasts and providing robust payment guarantees is essential to attract new investment. Renewable energy auctions must be expanded and conducted regularly, aligning procurement schedules with clearly communicated annual capacity targets. Introducing supportive mechanisms such as capacity payments at competitive rates would further mitigate investor risk, ensuring efficient, timely deployment of renewable projects and flexible energy infrastructure (Mykhailenko and Piddubnyi, 2024[54]).

To improve incentives to invest in renewable energies while containing fiscal risks, Ukraine could implement a regulatory framework for contracts-for-difference where a generator receives a fixed strike price, and a typically government-backed entity or a market operator pays or receives the difference based on market price fluctuations. These arrangements work best when investors can access finance at reasonable interest rates, which may make these mechanisms more appropriate in the medium term. Several OECD countries, including the UK, have found these to be effective, for example, in developing investments into wind energy (Department for Business, Energy and Industrial Strategy, 2022[55]).

Accumulated debts have also severely undermined the financial stability of district heating companies (DHCs) and Combined Heat and Power (CHP). As of February 2022, the total overdue debt of DHCs and CHP plants to Naftogaz stood at UAH 49.1 billion, rising to UAH 101.22 billion by September 2024 due to a combination of insufficient tariff compensation, unsettled payments in the balancing market, and the financial strain imposed by the war (RRR4U, 2025[56]). While the completion of an audit of DHC financials under the Extended Fund Facility (EFF) program was confirmed in December 2024 (International Monetary Fund, 2024[51]), transparency remains an issue. Addressing these structural debt issues will be crucial to restoring investor confidence, ensuring the sustainability of district heating services, and integrating them into a broader, more resilient, and low-carbon energy system.

GTSOU, Ukraine’s Gas Transmission System Operator, has undergone significant reforms to strengthen its corporate governance, enhance transparency, and align the operational framework with European Union standards. This unbundling from the state-owned Naftogaz supports independent operation and promotes fair competition in the gas market. The reforms are vital for attracting investment, modernising infrastructure, and bolstering Ukraine’s energy security. An independent evaluation of the supervisory boards of Naftogaz and Ukrenergo was set to be launched in January 2025 and concluded by March 2025. In the long run, the gas transportation and distribution network require modernisation to accommodate renewable and synthetic gases (biomethane and hydrogen).

Promoting competition and innovation

Copy link to Promoting competition and innovation

Buttressing corporate governance

Managing state-owned enterprises

Ukraine has done much to improve the efficiency of state-owned enterprises (SOEs) in recent years. The National Anti-Corruption Bureau of Ukraine (NABU) frequently conducts criminal investigations of SOEs and, with the Specialised Anti-Corruption Prosecutor's Office (SAPO), combating misappropriation of SOE funds and assets. To help reduce the state’s share in economic activity and improve the efficiency of SOEs more broadly, the government has implemented new laws and policies to accelerate privatisation and improve corporate governance. The State Property Fund of Ukraine (SPFU) has been given new powers, including the ability to liquidate assets under its control, which should help expedite the process of removing inactive SOEs from the state’s property portfolio. Their liquidation is likely to enable some assets to be sold, with the proceeds returning to government revenues. Eligibility criteria for entities seeking to purchase state assets have been tightened, and exclude persons included in the register of persons who have significant economic and political weight in public life according to the related law on such persons. Further legislation adopted has paved the way for the privatisation of state-owned banks to enhance efficiency and competitiveness within the banking sector (discussed below).

Considerable effort has been put into reconciling the various conflicting registers of state property, providing a clearer understanding of the businesses' assets and real estate under state control. This help has facilitated the triage exercise completed in December 2024 as part of the state ownership policy to determine whether SOEs a) remain under state control, b) are prepared for privatisation, and c) are liquidated. It also informs the privatisation strategy currently under development. As a result, 74% of SOEs are scheduled for privatisation or liquidation, 16% will remain under state ownership, and 9% will temporarily remain state-owned during martial law, with potential divestment once conditions permit. Additionally, 2% of SOEs will undergo reorganisation to separate activities justifying continued state ownership from those that should be privatised or wound down.

In 2024, the State Property Fund of Ukraine (SPFU) announced a large-scale privatisation agenda encompassing the sale of public assets in a wide range of sectors, including hotels, shopping malls, manufacturing and mining companies. The greatest obstacle to privatisation is the legal form taken by the vast majority of SOEs as State Unitary Enterprises (SUEs). Receivables, payables, inventories and equipment are not regulated appropriately, and mechanisms for the buyer to pay off the obligations of former SOEs are not always satisfactory. This can draw SPFU and buyers into disputes post-privatisation. Without dispute resolution, SOEs cannot be liquidated or merged with the buyer’s legal entity. Protracted disputes are a reputational risk to the government that may discourage investors from participating in auctions (in particular foreign investors) and jeopardise the overall privatisation agenda. Such issues can be resolved by corporatising SUEs.

The government is also committed to improving the corporate governance framework of SOEs to further economic efficiency and mitigate fiscal risks. Experience across OECD countries suggests that establishing a strong, independent ownership entity staffed by business and financial management experts to coordinate and supervise the government’s business assets can help improve the performance of SOEs (OECD, 2024[57]). Such an entity would provide ownership oversight of economically important SOEs, and coordinate the management and oversight of the rest of the SOE portfolio (OECD, 2021[9]). In practice, this entails having the powers, capacity and competency to exercise ownership rights, alone or in concert, with other parts of government involved in state-ownership. The ownership entity should be assigned to a part of the public administration that does not have concurrent responsibility for policy planning, regulation, or public policy objectives. It should be overseen by a senior government minister and be accountable to relevant legislative bodies. The ownership entity should enjoy a degree of budgetary autonomy and be adequately resourced to allow the flexibility to recruit, remunerate and retain necessary expertise. Finally, the ownership entity should be shielded from undue political interference and corruption.

In February 2024, the law “on amendments to certain legislative acts of Ukraine on improving corporate governance”, aiming to align the corporate governance of SOEs with OECD SOE Guidelines (OECD, 2024[58]), entered into force. The law strengthens the supervisory boards’ power, including the exclusive right to appoint and dismiss CEOs, and to approve strategic and financial plans. It also introduces new criteria for the independence of board members and establishes more rigorous evaluation procedures and internal control systems. While the draft law does not explicitly address competition with private sector firms or establish specific dispute-resolution mechanisms, it emphasises the importance of transparent and competitive processes in certain areas, such as the disposal of state-owned assets and the selection of managers for state-owned enterprises, and it mandates that state-owned enterprises operate in a manner consistent with market principles. On 29 November 2024, the Cabinet of Ministers approved the new state ownership policy, and fully implementing its reforms to governance can support SOE performance. The policy also requires dividend payment of at least 75% of the net profit of a state-controlled enterprises, except where Cabinet specifically approves, in which case the minimum dividend is 30%.

Box 2.3. Ownership policies for effective management of state-owned enterprises

Copy link to Box 2.3. Ownership policies for effective management of state-owned enterprises

Sweden

Under a mandate from Parliament, the Swedish government has implemented a comprehensive ownership policy for the active and professional management of State-Owned Enterprises (SOEs), with long-term value creation as its primary objective. The policy outlines the legal frameworks governing SOE ownership and defines the roles of the government offices responsible for oversight, including the designation of the Ministry of Enterprise and Innovation as the principal agency for SOE management. It establishes detailed guidelines for the roles, nominations, and composition of SOE boards of directors, along with financial targets, public policy assignments (where relevant), and other policy objectives. Additionally, the policy emphasises principles of sustainable value creation and strategic business targets, incorporating requirements for responsible labour practices and adherence to international principles and guidelines on responsible business conduct, including the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct.

Norway

Norway’s state ownership policy can be characterised by four key features. First, SOEs are divided into two groups: those focused on achieving the highest possible return over time, primarily competing with other enterprises, and those serving various public policy objectives which do not engage in competitive markets. Second, the state takes an active role by setting clear expectations for SOEs, appointing board members, and engaging with relevant stakeholders. Third, Norway’s SOEs adhere to a robust framework based on recognised principles and standards for corporate governance, ensuring transparency and accountability. Lastly, SOEs have well-defined social, environmental, and financial performance goals, reflecting the state's commitment to sustainability and responsible management.

Source: “Ownership and Governance of State-Owned Enterprises 2024”, (OECD, 2024[57]).

Additional secondary legislation to implement the new SOE law is foreseen, for example, in the area of board nomination procedures. Capacity building and support for complying with the new law and aligning SOEs with principles and standards of responsible business conduct will be critical for improving the performance of SOEs (OECD, 2023[59]). This should involve providing training and resources to SOE management and staff on responsible business conduct principles and standards and due diligence processes and establishing mechanisms for stakeholders to raise concerns and seek remedies in cases of non-compliance with responsible business conduct principles and standards by SOEs. Sweden and Norway have successfully implemented such policies for the effective management of SOEs (Box 2.3).

Improve the corporate governance framework

Corporate governance is crucial for the business climate. For example, banks and other financial institutions are more likely to lend to companies with transparent and accountable governance structures, as this improves information about their credit risks. Customers are more likely to do business with companies they trust, and good governance practices signal ethical and responsible business conduct. To support market confidence and integrity, the G20/OECD Principles of Corporate Governance help policymakers evaluate and improve the legal, regulatory and institutional framework for corporate governance (OECD, 2023[60]).

Ukraine's corporate governance framework for joint-stock companies has progressively improved over the past few years, although certain regulatory requirements have been lifted under martial law. Recent reforms have aimed to strengthen the independence of regulatory bodies like the National Securities and Stock Market Commission (NSSMC), signalling a commitment to enhancing supervision. However, the effectiveness of the Corporate Governance Code remains hampered by a lack of robust monitoring and enforcement mechanisms exacerbated by the war. Companies can choose to adopt the National Corporate Governance Code or the corporate governance code of a regulated capital market operator, an association of legal entities, or another corporate governance code. This choice can weaken the role of the NSSC’s Corporate Governance Code.

Ukraine has made notable progress regarding financial disclosure practices. The Amended Law of Ukraine on Capital Markets and Organised Commodity Markets (2021) and NSSMC regulation No. 608 (2023) have enhanced corporate governance requirements, including mandatory public disclosure of financial activities and formalised procedures for timely disclosure of regulated information. However, under martial law, reporting has become voluntary, resulting in a significant drop in disclosures, particularly for publicly listed companies. The Law on Audit mandates financial statement preparation under IFRS, and the Joint Stock Company (JSC) Law requires external audits for listed companies, but exemptions during martial law have diminished transparency. The authorities should strengthen enforcement of disclosure obligations after martial law ends, improve oversight of the regulation of related party transactions through external reviews, and enhance transparency by introducing safeguards to ensure the independence of external auditors (OECD, 2025[61]).

The 2023 Joint-Stock Company Law introduced significant reforms to the governance of boards in Ukraine, including the election process, roles of independent directors, and mandatory committees for publicly listed companies (audit, remuneration, and nomination). The flexibility between a one-tier or two-tier corporate governance model offers companies adaptability, although martial law has hindered the effective monitoring of these structures. Also, under the new JSC Law, beyond criteria that exclude persons from qualifying as independent directors, there are still no specific legal requirements regarding board members' qualifications, experience and diversity. The 2020 Corporate Governance Code recommends a 40% gender diversity target, though compliance remains low and is difficult to monitor as no national integrated reporting system exists. Authorities should ensure better monitoring of board practices and compliance with independence requirements (OECD, 2025[61]).

The NSSMC plays an important role in supervising and regulating Ukraine’s capital markets. The full-scale invasion has led to a substantial reduction and increased turnover of personnel. Progress has been made to enhance the political and operational independence of the NSSMC, particularly with the introduction of Amendment Law No. 3585 in 2024, which grants the NSSMC the authority to collect fees and contributions from the entities it regulates. Continuing to strengthen the NSSMC's capacity is crucial to ensure a transparent and efficient stock market (OECD, 2025[61]).

Ukraine has also made notable progress regarding shareholder empowerment and transparency. Key reforms include reducing the threshold for shareholders to call a general shareholders’ meeting from 10% to 5%, allowing electronic and remote voting, and improving access to general shareholders' meeting materials online. The introduction of derivative lawsuits, with the ownership threshold for claims reduced from 10% to 5%, allows shareholders to seek compensation for management-induced losses. The ten largest publicly traded companies comply with IFRS reporting standards.

Until 2024, Ukrainian legislation on insider trading lacked key provisions, such as the requirement to publish a list of insiders with access to confidential, price-sensitive information. A new law, introduced in 2024, addressed these gaps by mandating companies to maintain and update such lists, bringing Ukraine’s legislation closer with international and EU standards. However, the NSSMC’s powers will only begin in 2026, and its capacity to monitor insider trading has been limited due to previous legislative gaps. No insider trading cases have been initiated since 2019. Moreover, fines might still be too low. Further progress is essential to enhance active monitoring and ensure robust enforcement of insider trading regulations (OECD, 2025[61]).

While audits are currently under the board’s discretion, Ukraine should make the internal audit functions mandatory for all publicly traded companies and strengthen qualification requirements for audit committee members. The law does not consider an ex-ante review process to ensure the transaction’s fairness or the consequences for failing to comply. Further, while companies may develop Codes of Conduct or ethical standards of their board members, key executives, and controlling shareholders, these are not obligatory. Adopting Codes of Ethics, recommended by Ukraine’s Corporate Governance Code, should be encouraged across more companies. Additionally, enhancing shareholder redress mechanisms and enforcing disclosure regulations on related party transactions are key to improving transparency and accountability (OECD, 2025[61]).

Improving the insolvency framework

Insolvency frameworks play a critical role in relocating capital. The new Code of Ukraine on Bankruptcy Proceedings has brought significant updates, including personal bankruptcy for individuals and more transparent asset sales via electronic platforms. However, it notably lacks provisions for out-of-court agreements, which are instead covered under the Commercial and Procedural Code, lengthening insolvency procedures. Enhancing measures to support entrepreneurial rehabilitation would reduce the stigma associated with business failure.

Additionally, even before the full-scale war, bankruptcy moratoria rooted in systemic non-enforcement of court decisions, especially regarding state-owned enterprises (SOEs), undermined creditor rights and the broader business environment. The Government has committed to ending these moratoria as part of broader reform efforts to align with EU standards and improve the rule of law. These should include the creditors’ ability to initiate restructuring and the possibility for courts to approve a restructuring plan despite objections from dissenting creditors, which are essential ingredients to insolvency regimes that efficiently balance debtor and creditor rights (André and Demmou, 2022[62]). Amendments to the bankruptcy code entered into force in 2025 and promise progress in this direction by introducing a preventive restructuring procedure in accordance with the main principles of EU Directive 2019/1023, which provides additional opportunities for restoring the solvency of companies, promotes early crisis detection and the adoption of measures to prevent bankruptcy.

Ensuring competitive neutrality and contestable markets

The OECD Competitive Neutrality Toolkit lays out the principles for promoting a level playing field (OECD, 2024[63]). It provides a checklist that allows governments to identify gaps in areas like competition law and enforcement, the regulatory framework, public procurement, state support and public service obligations. Ukraine has made notable progress in strengthening its competition framework and aligning its practices with OECD recommendations. In 2023, the government implemented the first stage of a competition law reform. The reform included provisions that bolster the Anti-Monopoly Committee of Ukraine's (AMCU) resources, expand its investigative powers, and refine the leniency program to enhance the AMCU's capacity to tackle anti-competitive practices effectively.

The AMCU's proactive stance against anti-competitive behaviour is evident in the 290 decisions against cartels and 80 decisions against abuse of dominance in 2023, according to Ukraine’s annual report to the OECD Competition Committee. However, total fines amounted to USD 46 million or roughly USD 120 000 per decision, substantially below the average fine across OECD of more than USD 10 million per case (OECD, 2024[64]). The AMCU also demonstrated its focus on improving merger review efficiency with 564 merger notifications in 2023 and a relatively swift clearance of most cases. The committee's dedication to competition advocacy is further underscored by its recommendations to the National Energy and Utilities Regulatory Commission concerning bank guarantees. The AMCU's relatively limited staff size (7 per 1 million inhabitants against a ratio of 10 for the average OECD country) may constrain its ability to address all competition concerns comprehensively (OECD, 2024[64]). Given these circumstances, the reduction of approximately 15% in AMCU's 2023 budget compared to the previous year raises concerns that budgetary constraints might hamper the AMCU’s capacity to enforce competition laws effectively.

Despite these advancements, challenges persist. The prevalence of anti-competitive concerted practices, particularly bid rigging in public procurement, which accounted for a majority of the decisions against anti-competitive practices, highlights the ongoing need for vigilance and reform. Pro-competitive regulatory reforms could help improve the business environment and address regulatory barriers in network sectors. The authorities could learn from other countries’ experiences in implementing national competition policy frameworks (Box 2.4). To this end, plans by the Ministry of Economy to assess the consistency of how national legislation with the OECD Council Recommendation on combating bid rigging in public procurement are welcome.

A major structural bottleneck was the non-competitive land market, which weighed on productivity and investment in the agricultural sector. Following the privatisation of state-owned land in the 1990s, a moratorium on land sales was introduced, ostensibly over concerns that a free land market would result in the accumulation of landholdings by large private interests to the detriment of Ukraine’s smallholder farming community. In practice, though, agribusinesses still managed to obtain control over land through long-term leasing contracts with smallholders, many of whom were willing to lease at rates far below those seen in other European countries. From 2013, some measures to promote transparency and efficiency were introduced, including the digitalisation of the cadastre and Registry of Rights, the empowerment of legal professionals to register land rights in the State Registry of Rights. From 2012, legislative conditions have been created for holding auctions for the competitive lease and sale of state-owned and communal-owned land, and greater public access to, and awareness of, information on property rights and the land market.

Box 2.4. Australia’s National Competition Policy programme

Copy link to Box 2.4. Australia’s National Competition Policy programme

Australia’s implementation of the National Competition Policy (NCP) in the mid-1990s is widely regarded as a landmark example of successful pro-competitive reform. This decade-long initiative, undertaken at the federal, state, and municipal levels, systematically reviewed and reformed regulations that restricted competition, replacing them with frameworks designed to promote competitive markets and strengthen regulatory institutions. Key measures included structural reforms to make government businesses more commercially focused and expose them to competitive pressures, regulatory arrangements to ensure third-party access to essential infrastructure services and prevent overcharging by monopoly providers, and the review and amendment of legislation that restricted competition. The NCP delivered substantial benefits to Australia, including stronger economic growth, higher household incomes, reduced prices for goods and services, and enhanced business innovation, consumer choice, and responsiveness, showcasing the enduring advantages of fostering competitive markets.

Source: “Competitive Neutrality Toolkit: Promoting a Level Playing Field “, (OECD, 2024[63]).

These and other actions helped farmers to take advantage of the partial re-opening of the land market when the moratorium on sales was lifted in 2021 and individuals were allowed to purchase up to 100 hectares of land. Between July 2021 and the end of 2023, just over 1% of Ukraine’s agricultural land was traded. Since then, the Law on the Partial Credit Guarantee Fund in Agriculture has been passed, which helps promote affordable access to finance for farmers in the short to medium term by reducing credit risk. As the land market develops, land prices adjust to better reflect market values, and land market liquidity improves, land will become a more attractive form of collateral. Under the law, the state partially guarantees the loan obligations of farmers to banks, and the Fund is supported by donor partners.

From 1 January 2024, the land market was further opened by granting access to domestic legal entities. The limit on the maximum area of land legal entities and individuals are allowed to purchase also increased from 100 hectares to 10 000 hectares. Legal entities accounted for 18% of land purchases in the six months of 2024. Closely monitoring land sales would help enable authorities to take action to prevent holdings from being concentrated disproportionately among large landholders.

The “Land Bank” project, a joint initiative of the Ministry of Agriculture, the Cabinet of Ministers, the State Property Fund of Ukraine (SPFU), and private incubators, is central to Ukraine's efforts to reform and modernise its agricultural land market. The initiative aims to lease agricultural land held by SOEs to the private sector through a landholding company, the Land Bank, which SPFU manages. Under the scheme, agricultural land plots are taken from state unitary enterprises (SUEs) and transferred to the Land Bank. The Land Bank then auctions the lease rights to individual land plots through the Prozorro.Sale platform while retaining overall ownership. Lease agreements span periods of 14 to 25 years, depending on the agricultural zoning of the given plot.

Of the 800 000 hectares of agricultural land owned by SUEs, around 450 000 hectares have already been designated for sublease through the Land Bank. This initiative has the potential to generate as much as UAH 8 billion in revenue each year for government bodies split 90:10 between state and local budgets, with the first wave of auctions expected to lease around 90 000 hectares of land. To support the reallocation of land to higher productivity users, the government can accelerate the transfer of land plots while ensuring equitable access to agricultural land by regulating land leases and sales, preventing excessive concentration among large agribusinesses, while supporting small farmers.

The government could explore opportunities to repurpose certain state-owned land plots for more productive uses. By developing comprehensive plans for the spatial development of the territory of the territorial community, these efforts can better align with national reconstruction priorities and drive economic growth. More generally, effective land use planning in Ukraine requires a governance structure that balances local autonomy and centralised oversight. While decentralisation has empowered local governments, key land use decisions should not be overly decentralized, as this risks inconsistent policy application and weaker strategic planning. A clear, coordinated framework is necessary to avoid overlaps between different levels of government, ensuring that responsibilities are well-defined and decision-making processes are streamlined. This will promote cohesive, efficient planning and help attract investment while safeguarding national and regional priorities.

Harnessing investment promotion and innovation

Tailor industrial policy measures to well-identified objectives

In recent years, industrial policies have regained prominence in advanced economies, driven by a series of economic crises, escalating geopolitical risks, and a heightened awareness of environmental challenges (Millot and Rawdanowicz, 2024[65]). However, industrial policies can have wide-ranging pitfalls and be costly for economic dynamism and public finances, especially when the quality and integrity of public governance are weak. Political and vested interests could influence policy decisions, leading to the misallocation of resources or the protection of inefficient firms (Juhász, Lane and Rodrik, 2024[66]; Millot and Rawdanowicz, 2024[65]). Across the OECD, firms in which governments hold more than 25% of the shares tend to receive relatively more support in grants and below-market borrowings, undermining the level-playing field (OECD, 2023[67]). There is a genuine risk that poorly designed industrial policies could entrench existing economic and power structures rather than promote economic dynamism and broad-based growth. Finally, policy interventions to promote investment and innovation in advanced economies presuppose a sound business environment; they are by no means a substitute for it.

Juhász, Lane and Rodrik (2024[66]) identify three key rationales for industrial policy: i) externalities, ii) coordination failures, and iii) activity-specific public inputs. It might be argued that these could be relevant in Ukraine. For instance, facilitating investments in green energy and upstream parts of technological value chains can generate benefits, such as reducing reliance on energy imports, improving energy security, and creating high-quality jobs that stabilise regions affected by unemployment. For example, reconstructed and new industrial plants will require lower carbon emissions technologies compared with legacy industries, when the steel sector accounted for 75% of industrial emissions before 2022 (OECD, 2024[68]). The EU Carbon Border Adjustment Mechanism will necessitate significant industrial emission reductions.

The Ukrainian Government introduced preferential and special tax regimes to stimulate investment in 2021 and 2022. Strengthening governance, reducing discretion in incentives, and advancing monitoring and evaluation efforts, as outlined in the National Revenue Strategy 2024–2030, are crucial steps to ensure cost-effectiveness and alignment with national economic priorities. Over the long term, Ukraine may benefit from transitioning to more targeted, expenditure-based incentives to support innovation and sustainable investment.

Indeed, any fiscal incentives for investors should focus on fostering new, self-sustaining activities. For example, direct tax incentives can be linked to capital formation through accelerated depreciation, investment tax credits or temporary exemptions from duties on capital goods. These can directly reduce the cost of capital for new investment projects, thereby encouraging investment that might not otherwise occur. By contrast, income-based incentives, such as CIT holidays and exemptions, are generally undesirable. They may offer little to start-ups, innovative firms or established firms engaged in large new projects that, in the early stages of development, may not generate a profit and thus have no tax to pay. However, they can offer windfall benefits to existing profitable activities and often encourage tax planning and transfer pricing to shift activity from non-exempt to exempt enterprises. To the extent that they generate new investment at all, they tend to benefit projects with relatively short payback times (i.e., within the holiday period) at the expense of longer-term ventures.

Second, coordination failures and the massive destruction of physical capital present barriers to growth, as complementary investments in infrastructure, logistics, and supply chains may require public intervention to enable reconstruction. A historical parallel can be drawn with the Marshall Plan, which not only included long-term investments in education and training but prioritised capital inputs to SMEs, driving broad-based private-sector growth across Europe. Similarly, Ukraine could benefit from targeted policies that nurture SMEs as the backbone of the economy, fostering a competitive economic environment. Initiatives like the development of industrial parks could stimulate investment across interconnected sectors while providing network inputs such as digital infrastructure and public goods like specialised education could bolster emerging industries like AI and green technology.

Against this backdrop, industrial policy should focus less on subsidies and protectionist measures and more on framework conditions, such as addressing coordination failures and providing public inputs that enhance productivity and competitiveness, including investments in education and training, research and development, and infrastructure (Juhász, Lane and Rodrik, 2024[66]). Consultations with businesses can ensure that policies are well-informed, responsive to the needs of industries, and effectively implemented. Clear performance benchmarks and monitoring mechanisms should be established to reassess the impact of targeted policies regularly. For instance, the number of industrial parks, spurred by ample government support programmes, has more than doubled since the beginning of the full-scale invasion of Ukraine. Yet, there is no impact assessment on whether the government funds are spent efficiently and on whether the industrial parks meet their undertakings in terms of increased productivity, attractiveness for foreign direct investments as well as enhancing and diversifying exports.

Strengthen investment promotion capacities

While Ukraine’s Investment Promotion Agency, UkraineInvest, created in 2016, has provided valuable services to domestic and foreign investors, it has failed to fully act as a one-stop-shop for investors to alleviate bureaucratic obstacles (USAID, 2023[69]). Indeed, key services for investors, such as licensing, tax registration, and regulatory compliance, are handled by other ministries or local authorities, requiring UkraineInvest to coordinate with a wide range of stakeholders.

To enhance UkraineInvest's effectiveness as a one-stop shop, three key reforms are crucial. One involves streamlining the investment process by bringing together authority over permits, approvals, and regulations, which would reduce delays resulting from inter-agency coordination. Another important reform is to build the agency's capacity by granting it greater independence, a larger budget, and increased decision-making authority, enabling it to operate autonomously and respond more swiftly to investor needs, especially for large, complex projects. Additionally, implementing robust monitoring and evaluation systems would help track investment outcomes, using tools like customer relationship management systems to measure impact and improve accountability. The development of stronger regional offices could improve UkraineInvest’s effectiveness (Crescenzi, Di Cataldo and Giua, 2021[70]; Crescenzi and Harman, 2023[71]). This is already happening to some extent, with regional offices like those in Vinnytsia and Ivano-Frankivsk aimed at attracting investment to these regions. Expanding these efforts could strengthen the agency’s presence at a regional level, ensuring a more tailored and responsive approach for foreign investors.

International support, such as the Ukraine Donor Platform or the Ukraine Investment Framework (UIF), can help mutualise war-related risks (Box 2.5). The programmes’ effectiveness hinges on the collaborative efforts of the Ukrainian government and International Financial Institutions (IFIs). The government needs to play a proactive role in channelling the UIF support effectively to increase the availability of grants, enable effective transmission of guarantees to provide financing at reduced interest rates, implement specialised initiatives for SMEs in high-risk areas, and develop project financing to fund industrial projects at initial stages.

Under certain conditions and strict control mechanisms, public-private partnership (PPP) can be a mechanism to diversify funding for regional and local development projects, particularly when a government is faced with budgetary and funding constraints (OECD, 2022[72]). However, PPPs involve significant risk, including capture of their regulators, conflict of interest and corruption, and long-term constraints on government fiscal capacity. Ukraine is aligning its PPP framework with EU law and is developing the IT architecture for an electronic trading system for concession projects. Establishing a clear strategy that defines priorities across sectors, develops standardised methodologies for screening and appraisal, and strengthens capacity within the Ministry of Finance and Ministry of Economy to assess and manage fiscal risks would improve the environment for PPPs (World Bank, 2022[73]). Blended and concessional financing models can mitigate risks and improve projects’ prospective returns for investors. Despite some recent improvements that clarified the processes of initiating and budgeting PPPs, Ukraine still faces significant capacity gaps in managing PPPs, with limited expertise in project appraisal, procurement, and cost-benefit analysis (USAID, 2023[69]). Better staffing the understaffed PPP Agency, as well as hastening and streamlining approval process would help develop the role of PPPs to the reconstruction.

The implementation of a law adopted in early 2025 integrating public investment management, including PPPs, into the budget process is promising and should be implemented swiftly. The law stipulates that all public investment projects are selected according to pre-approved prioritisation criteria, consolidating the budgeting process by guaranteeing that only projects that have been properly scored and evaluated are included. It also clearly defines the roles of participants in the Public Investment Management process, introduces medium-term planning for public investment with a focus on ongoing projects, and mandates the use of a unified IT platform, such as DREAM and the IT systems of the Ministry of Finance and the Ministry of Economy, to enhance efficiency and transparency. The Ministry of Finance will oversee project financing, ensuring compliance with fiscal responsibility and strategic priorities.

Mobilising private sector financing for Ukraine’s infrastructure reconstruction is essential and should focus on creating an enabling environment that aligns with market-based incentives while safeguarding public interests. Establishing clear regulatory frameworks and institutional capacities, including through transparent procurement processes and public-private partnerships (PPPs) can help to attract investment. Establishing a clear strategy that defines PPP priorities across sectors, develop standardised methodologies for screening and appraisal, and strengthen capacity within the Ministry of Finance (MoF) and Ministry of Economy (MoE) to assess and manage fiscal risks would improve the environment for PPPs (World Bank, 2022_[72]). Blended and concessional financing models can mitigate risks and improve projects’ prospective returns for investors.

Attracting foreign investment is another critical factor for Ukraine’s recovery. Addressing war-related risks will be key to fostering this investment. Reforms to expand the Export Credit Agency’s capacity to provide war risk insurance and reinsurance of loans to foreign investors in processing and export sectors are already in place. To support these efforts, the Financial Stability Council approved the National Lending Development Strategy in June 2024. This strategy aims to finance the reconstruction of energy infrastructure, boost defence, manufacturing, and agriculture sectors, and stimulate business growth in de-occupied territories. The plan focuses on expanding lending to priority areas under martial law and enhancing the legal framework to promote broader market lending. Mobilising private sector capital, both foreign and domestic, will be crucial to ensuring the long-term sustainability of Ukraine's recovery and reconstruction efforts.

Box 2.5. International support frameworks for Ukraine

Copy link to Box 2.5. International support frameworks for Ukraine

Ukraine Donor Platform

The Ukraine Donor Platform was established by G7 leaders and brings together permanent representatives of the governments of Ukraine and G7 countries, of the European Union, and temporary members and observers from EU and non-EU countries and international financial institutions (IFIs).

The Platform aims to direct resources in a coherent, transparent, and inclusive manner. It is mandated to coordinate the support for Ukraine’s immediate financing needs and future economic recovery and reconstruction across different sources and instruments. This complements existing mechanisms, such as the G7 Finance Track, the G7 Coordination Group on energy infrastructure, and the IFI coordination group.

The Platform works with Ukraine’s authorities to define, prioritise, and sequence strategic needs in line with Ukraine’s reform ambitions, the conditions for financing and structural support of the major donors, and Ukraine’s European Union accession process.

Ukraine Investment Framework

The Ukraine Investment Framework (UIF) is the second pillar of the EU’s EUR 50 billion Ukraine Facility (discussed in Chapter 1). It aims to mobilise public and private investment for Ukraine’s recovery and reconstruction. The framework, which brings EUR 9.3 billion in guarantees and grants, aims to leverage up to EUR 40 billion in investments. The initial programmes, launched at the Berlin Ukraine Recovery Conference in June 2024, are backed by EUR 1 billion in guarantees and EUR 400 million in grants. Investments under these first UIF operations will be directed towards key areas such as infrastructure development, energy sector support, and access to finance for small and medium-sized enterprises. The UIF collaborates with the Ukrainian Government, EU Member States, and International Financial Institutions to implement these programs.

Source: https://ukrainedonorplatform.com/.

Leverage digitalisation

Ukraine has demonstrated notable progress in reinforcing the institutional framework to support digitalisation of small and medium-sized enterprises (SMEs) (OECD/EBRD, 2023[74]). Despite the full-scale invasion, Ukraine has accelerated its digitalisation efforts to enhance resilience during wartime. This includes ensuring continued internet access through national roaming and agreements with EU mobile operators. High-speed fixed and wireless internet access has remained among the cheapest globally (cable.co.uk, 2024[75]). The government continues expanding the Diia e-government platform, streamlining administrative services, such as applying for state benefits and recording housing damage. Diia.Business supports SMEs by offering consulting services and simplifying business permits. The platform also expanded significantly to offer wartime-specific services, including consultations through the virtual Diia Business centre, advice on remote work and business relocation, and tools to facilitate humanitarian aid, refugee support, and housing compensation. Ukraine developed digital platforms like DREAM to coordinate reconstruction transparently and GIS tools to prioritize regional development needs, ensuring efficient rebuilding efforts.

However, SMEs have yet to fully embrace digital tools, with adoption rates lagging behind those of larger firms. While nearly 70% of large businesses have an online presence, fewer than half of medium-sized businesses and just 30% of small enterprises do (OECD, 2024[76]). This hinders their competitiveness and role in a sustained reconstruction and recovery. The Ukrainian Government’s commitment to enhancing SME digitalisation, including through the SME Strategy 2024-27 released in September 2024, and the “Digital Innovation Development Strategy until 2030” (WINWIN strategy), released in January 2025, present opportunities to address these challenges.

Addressing war-related challenges through digital tools, such as promoting e-commerce to mitigate trade disruptions and enhancing cyber resilience, is crucial. Ukraine’s e-commerce market has grown, but the uptake by SMEs remains limited. Efforts to reduce shipping costs and foster consumer protection can boost SME participation (OECD/EBRD, 2023[74]). The new law “On Consumer Rights Protection” is welcome in this respect but will only enter into force after the end of martial law. Digital security remains a pressing concern, with SMEs particularly vulnerable to cyberattacks. The government supports efforts to foster cybersecurity through specific solutions such as cyber diagnostics for SMEs and the Tallinn Mechanism. Additionally, it advances digital transformation and resilience through initiatives like eVorog, Diia.TV, Diia.Radio, IDP assistance, war bonds, eVidnovlenie, and United24, as well as ongoing projects like Diia.Education, and CDTO Campus. Continuing to strengthen cyber resilience through stakeholder collaboration, bringing together government agencies, industry associations and NGOs, and reducing reliance on Russian software will remain critical to safeguarding businesses against digital threats.

ICT skills also matter, and the bias towards small firms does not help. Indeed, across OECD countries, large firms provide considerably more training opportunities to their personnel to develop and upgrade their ICT skills (OECD, 2023[6]). Ukraine’s digital literacy initiative, centred on the Diia.Education platform and “IT Studios”, has rapidly expanded interactive learning, job-focused skill development, and EU-aligned assessments to millions of citizens, students, and educators. Simultaneously, the newly launched Mriia ecosystem supports schools by enhancing academic planning and engagement, further accelerating the nation’s digital transformation. Efforts to retain, attract and invest in highly skilled labour are key during the war but also when emigration restrictions for adult males will be lifted.

Several countries have implemented targeted measures to allow SMEs to support data cultures and build ICT-relevant skills. Financial assistance, such as grants for digital technology investments (e.g., Digital Now in Germany) and consulting services (e.g., SME Digital in Denmark), helps alleviate upfront costs. Capacity-building initiatives, ranging from intensive bootcamps (e.g., Digital Pro Bootcamps in Austria) to specialised workshops (e.g., Accelerating digitalisation of SMEs in the Netherlands), equip SMEs with the necessary digital skills. Expert advice and guidance, offered through innovation hubs (e.g., Commit2Data in the Netherlands) and specialised centres (e.g., Competence Center Digital Crafts in Germany), bridge the knowledge gap. Additionally, collaborative research initiatives (e.g., Commit2Data) foster innovation and explore new possibilities in the digital realm. This diverse array of support measures ensures that SMEs have access to the resources and expertise required to thrive in an increasingly digital economy.

Unlocking the country’s export potential

Several structural features have hindered the full realisation of Ukraine’s export potential. Underpriced energy has delayed industrial restructuring and diversification of the product space, including for export markets. The country’s reliance on road transport and inefficiencies in river transport and management of public assets contribute to costs significantly higher than those of competitors. Additionally, Ukraine's railway sector faces major challenges. Most railcars are old, increasing maintenance costs and reducing service quality. Ukraine's 1520 mm gauge is incompatible with Europe's 1435 mm standard gauge, requiring freight transfers or bogie changes at borders, complicating rail connections. To address this, Ukraine is building standard-gauge railways on key routes, such as to Lviv. Expanding 1435 mm infrastructure will improve transport efficiency, boost trade, and strengthen economic ties with the EU.

The government is updating its export strategy and expanding support for SME integration into global value chains and e-commerce platforms. The restructuring of state bodies in recent years led to the creation of the Entrepreneurship and Export Promotion Office (EEPO), which now manages the Diia.Business platform, providing support for entrepreneurship and export promotion. The EEPO, bolstered by international aid, has proved to be highly functional. In collaboration with European partners, it secured significant funding to support Ukrainian enterprises affected by the war. The ongoing war has also accelerated the digitalisation of society and the adoption of e-government platforms, with EEPO promoting online courses for SMEs and digital transformation programmes. Additionally, the Diia.Business portal launched the Ukrainian Exporters Catalog, a free online platform that connects foreign companies with Ukrainian manufacturers, offering benefits such as participation in international events, global promotion, and networking tools, ultimately bolstering Ukraine’s visibility and growth in global trade.

Fostering intellectual property rights

Internationalisation and scientific collaboration can support innovation and help diversify export markets, although Ukraine currently lags far behind most comparable countries. It is critical to prioritise sustained investment in research to support Ukraine’s reconstruction and economic upgrading efforts. This will lay the foundations for attracting and retaining highly skilled researchers and innovators, bolstering productive capabilities, and diversifying Ukraine’s business sector.

Intellectual property (IP) rights protect innovations and attract investment. Ukraine has adopted standard intellectual property protection that abides by WTO provisions. Still, challenges remained prior to the full-scale war, including the continued use of unlicensed software by Ukrainian government agencies and the ongoing failure to implement an effective means to combat online copyright infringement (USTR, 2024[77]). The Ukrainian National Office for Intellectual Property and Innovations (UANIPIO) assumed responsibility for all IP matters in Ukraine in November 2022, replacing the previous Ukraine Intellectual Property Institute. UANIPIO is the central body for processing and granting patents, trademarks, designs, and other IP rights; overseeing the enforcement of IP rights and combating infringement; formulating and implementing national IP policies; and collaborating with international organisations like WIPO and the EUIPO on IP matters. Despite facing disruptions and an unstable operating environment, UANIPIO has made significant progress in launching online filing services and processing IP applications.

While these developments are part of Ukraine’s broader strategy to align with EU standards, as mandated by the EU-Ukraine Association Agreement, challenges remain. Improvements in key areas, including aligning laws on copyright, industrial property rights, and trade secrets and enhancing the functioning of collective management organisations to strengthen IPR enforcement, particularly in combating piracy and counterfeit goods (European Commission, 2023[78]) are underway. Establishing a specialised intellectual property court and leveraging collaboration with the European Union Intellectual Property Office will help to close the gap further with the EU acquis.

Removing obstacles to international trade and investment

Aligning trade facilitation with OECD practices can support integration into global value chains, bolster exports, and reduce import costs. The OECD Trade Facilitation Indicators suggest considerable potential for improvement in several areas (Figure 2.17), including the cooperation between internal and external border agencies, the accessibility of customs-related information, and the easing of administrative burdens associated with customs procedures and formalities (Sorescu and Bollig, 2022[79]). These policies can support access to global markets, reduce trade costs, and ensure the timely delivery and expedition of goods. A major reform enacted in late 2024 introduces mechanisms for the objective selection of leadership, strengthens human resources, ensures independent oversight through audits, and improves the certification process for customs officers. This reform is crucial for enhancing transparency, fostering a more favourable business climate, and speeding up the process of aligning with EU customs practices, notably regarding the automated exchange of information and the harmonisation of formalities.

Figure 2.17. There is ample room to enhance trade facilitation measures
Copy link to Figure 2.17. There is ample room to enhance trade facilitation measures

Trade facilitation indicators, 2022

The recently released OECD FDI Regulatory Restrictiveness Index (OECD, 2024[80]) identifies several restrictions in Ukraine affecting foreign investors (Figure 2.18). Empirical evidence suggests that a ten-percentage point reduction in the OECD FDI restrictiveness index can boost inward FDI stocks by 2.1% on average (Mistura and Roulet, 2019[81]). Despite Ukraine’s legislation endorsing the non-discrimination of foreign investments, the country still enforces several restrictive measures that qualify as exceptions under the OECD Declaration on International Investment and Multinational Enterprises (OECD, 2024[82]). Specifically, foreign-owned enterprises’ access to forests and equity participation in broadcasting activities and air transport are limited. Additionally, the acquisition of real estate is closed to foreign equity participation. Removing these restrictions would lift barriers to foreign investment in these areas. The gradual withdrawal of temporary measures taken after the full-scale invasion to stabilise the currency, such as bans on the repatriation of dividends, will remove further obstacles to foreign investments.

War-related risks heighten difficulties in attracting foreign direct investment (FDI) and trade. Ukraine is working to address this barrier by providing war risk insurance products and partnering with international financial networks. Legislative reforms are underway to expand the Export Credit Agency’s capacity to provide war-related insurance and reinsurance of loans to foreign investors to stimulate the development of the processing industry and export goods. The authorities can build on OECD countries’ experiences to build an effective export credit agency (Box 2.6).

Figure 2.18. Foreign equity restrictions hold back foreign direct investment
Copy link to Figure 2.18. Foreign equity restrictions hold back foreign direct investment

Enhancing businesses’ access to finance

Copy link to Enhancing businesses’ access to finance

Access to finance is critical to support stronger private investment, productivity growth and develop export industries. The war has significantly increased the financing needs of the private sector. At the beginning of 2025, recovery and reconstruction needs for the private sector alone were estimated to amount to USD 133 billion for the next ten years (Figure 2.1), representing roughly 75% of the annual GDP (World Bank et al., 2025[3]). Financing the recovery will require bolstering the banking system, developing capital markets and other non-bank sources of investment, and ensuring the regulatory framework is attractive for foreign investment (OECD, 2025[61]).

Mobilising bank lending

Financial intermediation remains small compared to peer countries. Total bank assets represented 46% of GDP in 2022 compared to ratios exceeding 80% in most peer countries (Figure 2.19, Panel A). Similarly, lending activity remains well below peer countries, with bank domestic credit to the private sector totalling 18% of GDP in 2023, compared, for example, to over 60% in Slovakia (Figure 2.19, Panel B). While bank deposits have expanded rapidly, lending growth has remained subdued, exposing many credit-constrained businesses to liquidity risks. Government-subsidised loan programmes are in place to help bridge the funding gap (Box 2.7).

Box 2.6. Designing effective Export Credit Agencies (ECA)

Copy link to Box 2.6. Designing effective Export Credit Agencies (ECA)

Governments support national exporters through ECAs, which can be government entities or private firms operating on behalf of the government. ECAs provide official financing support (e.g., direct credits, refinancing, interest-rate support) or pure cover support (e.g., export credit insurance, guarantees for private lenders). As such, ECAs can fill the funding gap that private-sector lenders create with their inability or unwillingness to provide financing for export and investment projects. The OECD has developed several instruments to support the functioning of ECAs.

The OECD Arrangement on Officially Supported Export Credits provides a framework for the orderly use of officially supported export credits by fostering a level playing field to encourage competition among exporters based on the quality and prices of goods and services exported rather than on the most favourable export credits. Participants in the Arrangement are Australia, Canada, the European Union, Japan, Korea, New Zealand, Norway, Switzerland, Türkiye, the United Kingdom, and the United States while non-member countries are regularly invited to observe meetings of the Export Credit Committees.

The OECD also provides a forum for discussing and coordinating national export credit-related policies, including anti-bribery measures, environmental and social due diligence, and sustainable lending practices. These discussions take place under the auspices of the Working Party on Export Credits and Credit Guarantees (the “Export Credits Group”, or ECG).

Source: https://www.oecd.org/en/topics/export-credits.html.

The banking sector has become increasingly dominated by state-owned banks, which control 56% of total assets, including over 60% of retail deposits. PrivatBank, the largest state-owned bank, holds 26% of total banking assets and 36% of retail deposits. Foreign-owned banks account for 25% of assets, while domestic private banks hold 20%. The sector has undergone significant restructuring since 2014, following a financial crisis that reduced the number of banks from nearly 180 to fewer than 80 by 2019. PrivatBank’s 2016 nationalisation marked a turning point, raising state ownership to the majority of banking assets. As of January 2025, 61 solvent banks operated in Ukraine, with a significant concentration of assets among the top three banks, all of which are state-owned, holding 46% of the total loan portfolio. Liquidity ratios remain high, with banks expanding cash reserves and reducing the share of loans in their portfolios. Banks’ profitability has been boosted by increasing holdings of high-yielding government bonds.

An important challenge for the financial sector has been the elevated level of the non-performing loan (NPLs) ratio, which peaked at over 56% in 2017 following the 2014 banking crisis, driven by heavy losses at the then privately owned PrivatBank. While the NPL ratio declined to 27% before Russia's full-scale invasion, it spiked to 39.3% in May 2023 before easing to 30.3% by January 2025. State-owned banks have higher NPL ratios (43%) compared to Ukrainian private banks (12.6%) or foreign-owned banks (10.9%). Corporate loans face greater NPL challenges, particularly in sectors like real estate and construction. In response, Ukraine has introduced restructuring mechanisms, including the "Kyiv Approach" and created a specialised committee to tackle NPLs at state-owned banks, with further reforms planned under the National Lending Development Strategy.

Building on early strategy documents for the financial system (National Bank of Ukraine, 2023[83]) (National Bank of Ukraine; Ministry of Finance of Ukraine; National Securities and Stock Market Commission of Ukraine; Deposit Guarantee Fund of Ukraine, 2023[84]), the 2024 “National Lending Development Strategy” prioritises efficient, fair, and timely NPL resolution, ensuring equal treatment for all lenders and borrowers while balancing creditors’ rights and debtors’ continued economic activity. Legal barriers, such as court requirements and restrictions on loan write-offs, should be reviewed to accelerate NPL clean-up. The NBU has committed to full asset quality reviews (AQRs) to enable accurate NPL pricing and resolution. Additionally, authorities are exploring strategies such as establishing Asset Resolution Companies or allowing banks to handle NPLs independently or collectively. Policy priorities should be to enhance legislation on insolvency and restructuring, improve data transparency, and incentivise NPL market infrastructure development to boost the financial sector’s capacity to support Ukraine’s recovery and growth.

Figure 2.19. Financial intermediation is low
Copy link to Figure 2.19. Financial intermediation is low

% of GDP

The NBU has implemented a series of measures to enhance the banking sector’s ability to extend credit for rebuilding the economy. These initiatives align with the Lending Development Strategy, developed in cooperation with the Ministry of Finance and the Ministry of Economy, to boost credit support for key sectors during martial law. The measures include revising capital adequacy requirements, introducing transitional provisions to assist banks in meeting new EU-aligned regulatory standards while preserving their lending capacity, and allowing the inclusion of interim profits and certain funds in capital calculations. Special rules have also been introduced for assessing credit risk from specialised loans to encourage financing for priority sectors, such as energy and agriculture, and projects focused on rebuilding economic infrastructure. These actions are designed to balance the need for financial stability with the need to expand lending, ultimately enhancing the banking sector's role in supporting Ukraine's economic recovery.

Bank lending in Ukraine is constrained by the scarcity of acceptable collateral, as banks require high collateral coverage while having a preference for real estate over movable assets as the underlying security. This limits SMEs’ ability to secure financing using a broader range of assets. Movable assets remain underutilised as collateral, highlighting the need to streamline the loan agreements and collateral registration process. Legislative reforms are also needed to strengthen creditor rights and simplify foreclosure procedures on collateral. The current restrictive currency control regime complicates cross-border lending and the use of collateral in international financing arrangements. Additionally, Ukraine’s separate registers for immovable and movable property create inefficiencies, while the absence of a comprehensive credit information system further restricts lending. The United Register of Debtors primarily records legal non-compliance rather than offering a full picture, including positive track records, of credit histories.

Risk pooling initiatives and the expansion of war insurance schemes are essential for mitigating financial risks in Ukraine. However, the reinsurance market has effectively closed for Ukraine, and coverage of war-related risks remains limited, with private insurers unable to provide coverage at scale. As a result, additional sources are necessary to bridge this gap. For example, the European Bank for Reconstruction and Development’s initiative to develop a reinsurance facility by leveraging existing market infrastructure and implementing risk transfer mechanisms to reduce the risks for private investors from war-related damages or expropriation. Enhancing access to commercial war risk insurance is expected to foster business activity, unlock financing, and contribute to Ukraine’s economic recovery and reconstruction (Box 2.7).

Box 2.7. Initiatives to develop credit to businesses

Copy link to Box 2.7. Initiatives to develop credit to businesses

The “5-7-9 programme”

The government provides an interest subsidy on loans to businesses under the “Affordable Loans at 5-7-9%” programme to facilitate businesses’ access to bank lending. As of January 2025, since the start of the programme in 2020 more than 100 000 business loans have been granted under the programme, totalling UAH 389 billion (BDF, 2025[85]). UAH 300 billion of these loans were issued since the beginning of the Russia’s war of aggression against Ukraine, accounting for around 77% of new business loans. The sectors that most used this programme are agriculture (46%), trade and production (23%), and industry (21%). Accordingly, this programme is playing a critical role in supporting access to credit for companies. The German Government has provided EUR 200 million in grant funding to cover the fiscal cost of the programme in 2022 and 2023 (Deutsche Botschaft Kyjiw, 2023[86]). The Ukrainian Government has envisaged approximately UAH 72 billion of lending over 2024-2027 for the programme, along with similar subsidies for leasing and factoring. Of this, UAH 18 billion was allocated for 2024.

State guarantees

In addition, the government introduced in June 2023 a State Portfolio Guarantee programme, whereby up to 80% of the portfolio of banks’ loans to MSMEs can be guaranteed by the state, up to a total value of UAH 7.8 billion (Ministry of Finance of Ukraine, 2023[87]). Nine banks are participating in the programme. A similar programme for the agricultural sector, the Partial Credit Guarantee Fund in Agriculture (PCGF), was launched in January 2024. The PCGF provides guarantees of up to 50% of loans for small farmers, up to a maximum loan of USD 800 000 per borrower for land purchases. The programme is currently funded by the World Bank and the EU (World Bank Group, 2024[88]).

War risk insurance

In December 2024, the European Bank for Reconstruction and Development (EBRD) and global professional services firm Aon launched a EUR 110 million Ukraine Recovery and Reconstruction Guarantee Facility. This facility is designed to support global reinsurance companies with a guarantee covering certain war-related risks underwritten by local Ukrainian insurers.

Bolstering non-bank financial services

Non-bank financial institutions (NBFIs) can potentially be critical drivers in financing recovery and reconstruction efforts. Finance companies, in particular, have shown resilience by expanding into retail lending, leasing, and factoring. This diversification beyond bank loans is crucial for providing businesses and households with alternative financing solutions, especially for smaller enterprises and when bank lending is constrained. As of mid-2024, the share of NBFIs in Ukraine’s financial sector remains relatively modest. The total share of NBFIs in the country’s financial sector assets stood at 10% as of June 2024 (National Bank of Ukraine, 2024[89]) while this share amounted to more than 50% in advanced countries and more than 25% in emerging countries globally at the end of 2022 (Financial Stability Board, 2023[90]).

The relative underdevelopment of Ukraine’s NBFI market can be explained by a combination of factors, including weaker regulatory frameworks, limited public trust, and the dominant position of the banking sector, notably state-owned banks. The modest penetration of NBFIs in Ukraine suggests there is significant potential for growth, particularly in insurance, leasing, and factoring services, which could play a larger role in meeting the country’s reconstruction and recovery financing needs. In addition, they can play an important role in supporting SMEs by providing specialised products such as leasing contracts and microfinance that are better suited to such businesses. However, the sector will require strategic support and regulatory improvements to reach levels seen in more advanced or comparable economies.

In 2020, the NBU became the market regulator for non-bank financial services, including insurance companies, leasing companies, factoring companies, credit unions, pawnshops, and other financial institutions (OECD, 2021[9]). The NBU and other regulatory bodies have focused on tightening regulations to build a more resilient NBFI market. This includes enhancing corporate governance and solvency requirements for insurance companies, simplifying entry into the credit union market, and increasing transparency and risk management for financial leasing companies. Additionally, new laws have been introduced to streamline licensing procedures and strengthen investor protections, particularly in the insurance and leasing sectors. One of the objectives was to consolidate the market and strengthen its resilience. Indeed, the number of finance companies, for instance, decreased from 960 in 2020 to 548 in June 2024. At the same time, their financial assets increased by 40%.

The new reporting requirements in the non-bank financial institutions (NBFI) market of Ukraine are part of a broader effort to enhance regulatory oversight and transparency. Since January 2024, participants in the NBFI market, such as insurers, finance companies, credit unions, and pawnshops, have been required to submit updated reports in line with new standards issued by the National Bank of Ukraine (National Bank of Ukraine, 2024[89]). The changes involve more detailed financial disclosures, including regulatory balance sheets, off-balance sheet liabilities, and refined performance metrics. Importantly, the frequency of reporting has also increased for some institutions: starting January 2025, certain entities will be required to submit monthly rather than quarterly reports. These adjustments aim to align the Ukrainian financial sector more closely with international practices, allowing for more effective monitoring of financial health and compliance among NBFIs, particularly following the challenges faced in recent years.

Institutional investors such as pension funds and insurance companies could play a vital role in deepening Ukraine's capital market. Revising the investment limitations currently imposed on pension funds to allow for greater flexibility in asset allocation could improve returns and increase market depth. Asset-backed pensions in Ukraine are very small, and efforts to develop the legal and regulatory framework are at a very early stage (OECD, 2025[61]). Encouraging the use of long-term investment products and enabling pension funds to lend securities could also foster liquidity in the secondary market. Promoting occupational pension schemes and enhancing incentives for voluntary savings will help build a sustainable flow of capital into market investments (Høj and Klimchuk, 2024[91]). The regulatory framework should be expanded to allow the inclusion of investment funds and loan assets within occupational pension funds. (OECD, 2024[92]).

Fostering capital market development

Private capital will be essential for Ukraine’s recovery and reconstruction, especially in the medium term as the economy and financial sectors deepen. Ukraine’s capital markets remain underdeveloped and fragmented. Ukraine had seen a declining market capitalisation relative to GDP, from almost 30% in 2010 to just under 3% in 2018 (World Bank WDI), with only one initial public offering in the five years before the full-scale invasion (De Haas and Pivovarsky, 2022[93]). Between February and August 2022, trading activities were halted for all products, except for government bonds, which can be accessed either cross-border by foreign investors via the link between the International Central Securities Depository Clearstream Banking Luxembourg and the National Bank of Ukraine or via foreign investors’ on-shore accounts opened with Ukrainian banks, or via foreign nominee account (National Securities and Stock Market Commission of Ukraine, 2024[94]). Total market capitalisation shrank to around 2% of GDP in 2023 (Figure 2.20).

Ukraine has two operating stock exchanges, with 22 companies trading. The state holds more than 50% of the shares of two of these companies (OECD, 2025[61]). To encourage growth in Ukraine's stock market, it is essential to streamline regulatory reforms and align the capital markets framework with EU standards. This includes introducing a financial collateral law to enhance market efficiency, reviving the NBU roadmap for integrating financial market infrastructure with European directives and reforming the derivatives market to secure legal certainty on netting agreements (De Haas and Pivovarsky, 2023[95]; NBU, 2023[96]). Listing of financially significant SOEs, such as energy, transport or financial companies, can also help broaden the market and further incentivise these companies to adhere to the highest standards of corporate governance to inspire investor confidence.

Figure 2.20. Market capitalisation is low
Copy link to Figure 2.20. Market capitalisation is low

Market capitalisation of listed firms, % of GDP, 2023

Enhancing liquidity in Ukraine's secondary stock market is crucial to providing confidence for both local and international investors. Encouraging inactive shareholders, including those linked to the privatisation programme of the 1990s, to participate actively in stock exchanges and trading platforms could also help stimulate activity and increase liquidity (OECD, 2022[97]). Additionally, reducing trading fees and simplifying tax processes, such as adopting a withholding tax system for capital gains, can make the market more appealing to retail investors.

SMEs typically face particular barriers to accessing capital. A vibrant SME growth market could be nurtured by providing tailored support to encourage SMEs to list on an alternative market, akin to Romania's AeRO Market. Cooperation between the Ukrainian Stock Exchange and regional business chambers can help promote market-based financing, while training programs could enhance SME knowledge of financing options. Increasing the threshold for exempting public offerings from the prospectus requirement would also ease the process for SMEs to access public funding, making the equity market a more attractive option for growth.

The development of a corporate bond market in Ukraine can diversify sources of capital, particularly for larger infrastructure projects. Streamlining the regulatory process for issuing corporate bonds and establishing domestic credit rating agencies could make debt markets more accessible for Ukrainian firms.

Findings and recommendations

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FINDINGS	RECOMMENDATIONS (Key recommendations in bold)
Enhancing public integrity
Despite significant progress in establishing anti-corruption institutions, public perception of corruption remains high, and perceptions of judicial independence are low, undermining trust and deterring especially foreign investment that will be much needed for the reconstruction.	Strengthen the independence of anti-corruption bodies and complete the legal framework for judicial appointment standards with binding integrity assessments. Remove the perpetual integrity provision to ensure that all High Council of Justice candidates undergo thorough integrity assessments and strengthen the role of regulations of the Public Integrity Council.
Gaps in the implementation and enforcement of public integrity strategies, such as in the independence of internal audit and the accountability of public officials, hinder overall effectiveness.	Empower oversight bodies to impose sanctions for breaches of public integrity regulations and advance the enforcement of lobbying regulations, including mandatory cooling-off periods, to reduce risks of conflicts of interest.
Improve the regulatory framework and its implementation
Regulatory inefficiencies, lack of transparency, and inconsistent enforcement weigh on the business climate. Bureaucratic obstacles, compounded by insufficient stakeholder engagement and alignment with EU standards, create a climate of uncertainty.	Modernise the regulatory framework by implementing the public consultations law, adopting data-driven risk assessments and strengthening policy coordination.
The State Regulatory Service (SRS) and related entities and registers are fragmented, challenging evidence-based and stakeholder-driven regulatory decision-making and affecting their overall efficiency and effectiveness.	Swiftly implement plans to launch a central regulatory portal run by the State Regulatory Service to discuss and monitor regulatory reform processes, enhance stakeholder engagement and serve as a basis for harmonised Regulatory Impact Assessments.
Inefficient customs services and regulatory burdens increase costs and create uncertainties for domestic and foreign firms.	Align trade facilitation measures with WTO standards, including by implementing digital tools to automate processing and streamline compliance with procedures for trade formalities.
Tax compliance is costly for taxpayers, the tax administration is perceived as cumbersome and unfair, undermining the business climate, and contributing to firms’ operating costs and widespread informality.	Reduce the administrative burden of paying taxes by developing digital tools to support reporting and shifting to risk-based auditing.
Develop competitive and supportive transportation and energy network sectors
Russia’s attacks have extensively damaged infrastructure, and reconstruction needs are immense. Public-private partnerships can crowd in private investments, but limited capacity to plan, assess, and oversee projects poses risks to efficient and transparent use of resources.	Implement recent Budget Code reforms on medium-term planning, prioritisation, and integration in the budget process of public-private partnership projects.
Distorted energy price signals deter new energy investments and weaken economic incentives to increase energy efficiency. Structural debt issues undermine investor confidence and weaken the financial stability of district heating companies and green energy producers.	Once the security situation allows, gradually remove energy price caps such that prices reflect costs. Implement targeted support, not based on actual energy consumption, to vulnerable households. Resolve legacy issues of unpaid debts to energy producers, including district heating companies and combined heat and power plants.
Demand and supply uncertainty for renewable energy sources increases the risk for new entrants and holds back new generation capacity.	Consider developing contracts for difference to encourage private investment into low-emissions energy generation.
Buttress corporate governance
SOE governance is improving, but the privatisation process is hampered by a lack of a clear agenda, and legal uncertainties are holding private investors back.	Establish a centralised or coordinated ownership entity for state-owned enterprises to streamline oversight and management, reduce fragmentation and improve accountability. Corporatise state unitary enterprises and eliminate legal ambiguities to reduce post-privatisation disputes.
Alignment with G20/OECD Principles of Corporate Governance is underway, but effective implementation is lagging behind.	Further improve transparency and functioning of boards, including full disclosure of qualifications of board members and mandatory auditing.
Bankruptcy moratoria and systemic non-enforcement of court decisions regarding distressed assets, particularly for state-owned enterprises, has long undermined creditor rights.	End bankruptcy moratoria and ensure that creditors are able to initiate restructuring and courts to approve a restructuring plan despite objections from dissenting creditors.
Ensure competitive neutrality and contestable markets
The high number of decisions against anti-competitive practices demonstrates Ukraine’s commitment but also calls for enhancing the resources and enforcement capabilities of Ukraine’s Antimonopoly Committee.	Ensure adequate resources for the Anti-Monopoly Committee of Ukraine to enforce competition law effectively.
Foreign direct investment is low in international comparison, in part due to restrictions on foreign investment.	Remove restrictions on real estate access for foreign-owned companies and relax rules limiting foreign direct investment in some sectors.
Cumbersome inter-agency coordination creates delays in investment and adds to cost for doing business.	Strengthen the effectiveness of the central investment promotion agency (UkraineInvest) by transforming it into a one-stop-shop for potential investors and strengthening the capacity of regional offices.
Ukraine’s land use and planning system is undergoing significant transformation, driven by decentralisation, the opening of the land market, and efforts to align with European standards.	Ensure flexible land-use planning that allows agricultural land to be repurposed for housing, infrastructure, and renewable energy.
Enhance access to finance
A large stock of non-performing loans (NPLs) continues to weigh on the banking sector, undermining domestic and international confidence. The legacy of past related-party lending and bank failures weighs on confidence in the banking sector. The market dominance by state-owned banks has increased since the start of the full-scale invasion.	Remove legal barriers to NPL resolution, continue to conduct asset quality reviews and develop an NPL market infrastructure while ensuring fair treatment of creditors and protecting debtors’ economic activity. Pursue the privatisation of state-owned banks while ensuring robust safeguard assessments of investors and the competitiveness and stability of the banking sector. Improve the regulatory infrastructure for credit to the private sector by strengthening credit information.
Capital markets are underdeveloped and fragmented.	Simplify the listing process for public offerings, support the listing of financially significant SOEs and mobilise institutional investors, for instance, by promoting occupational pension schemes.

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