BDO in Ukraine on the Role of Local Municipalities and Government in Ukraine’s Recovery

Ukraine’s recovery has demonstrated that the effectiveness of public administration is not shaped solely at the central level. The central government defines the rules, priorities, budgetary frameworks, and oversight mechanisms. However, the practical implementation of recovery takes place primarily in municipalities, where housing, roads, utility infrastructure, educational institutions, and healthcare facilities need to be restored.

According to the RDNA5 assessment, as of the end of 2025, Ukraine’s recovery and reconstruction needs amounted to USD 587.7 billion, while direct damages were estimated at USD 195.1 billion. The scale of these challenges makes recovery impossible without the active involvement of local governments, the private sector, and international partners.¹

What Decentralization Changed

The decentralization reform launched in 2014 significantly transformed the system of local self-government. As a result, 1,469 territorial municipalities were established, while the number of districts was reduced from 490 to 136. This marked a transition from a fragmented system of small administrative units to a more consolidated local level with broader powers and a stronger resource base.

One of the most notable outcomes was fiscal decentralization. Local budget revenues increased from UAH 68.6 billion in 2014 to UAH 275 billion in 2019. At the same time, state support for regional development grew from UAH 0.5 billion to UAH 20.75 billion, enabling the implementation of more than 12,000 local and regional projects.

Beyond increased financial resources, local governments were granted greater authority over the delivery of administrative services, land use management, and local development. As a result, they evolved from primarily implementing central government policies to playing a more active and independent role in shaping the development of their territories.²

Division of Responsibilities Between the Central Government and Local Municipalities

Decentralization did not diminish the role of the state. The central government remains responsible for policymaking, legislation, national funding programs, the coordination of international assistance, and the public investment management system.

Local governments, in turn, are responsible for identifying local needs and implementing projects within their jurisdictions. They make decisions on the restoration of municipal infrastructure, the operation of schools and hospitals, water and heat supply systems, and other critical public facilities.

Why the Local Level Is Often More Effective in Recovery Efforts

Wartime experience has shown that local authorities have a distinct advantage when rapid action and a deep understanding of municipality needs are required. Local governments were often the first responders to attacks on energy infrastructure, ensuring the continued operation of critical facilities, emergency heat and water supply systems, and the delivery of essential public services.

However, this advantage has its limits. Large-scale infrastructure projects require state funding, donor support, regulatory approvals, technical documentation, and compliance with established procedures. As a result, local responsiveness alone is not enough to ensure the successful delivery of major recovery projects.³

A telling example was the response to the large-scale attacks on energy infrastructure during the winter of 2022–2023, and later in 2025–2026. While the central government coordinated the energy system at the national level, many operational decisions were made by regional and local authorities. Regional military administrations, working closely with local energy providers and municipal services, determined priorities for connecting hospitals, water utilities, boiler facilities, Points of Invincibility, and other critical facilities to backup power sources, while also coordinating emergency response teams and communication with residents. This demonstrated that, in times of crisis, the effectiveness of recovery depends not only on central coordination but also on the ability of local authorities to quickly identify the specific needs of their municipalities and ensure practical implementation on the ground.

Main Challenge: Uneven Capacity Across Municipalities

Despite gaining greater responsibilities, Ukrainian municipalities differ significantly in terms of available resources and institutional capacity. Some have a strong economic base and extensive experience working with international partners, while frontline and war-affected areas continue to face shortages of financial, human, and institutional resources.

This disparity is also reflected in government policy. The 2025 State Budget allocated UAH 36.5 billion in additional grants to municipalities affected by russia’s armed aggression.⁴

In addition, recovery requires new capabilities, including the preparation of investment projects, the development of feasibility studies, engagement with international financial institutions, the management of grant-funded initiatives, and the implementation of public investment projects. The shortage of professionals with these skills has increasingly become a key constraint on municipalities’ ability to attract funding.

The reform of public investment management⁵ and the DREAM⁶ system has introduced more transparent mechanisms for project selection, while also raising the standards for project preparation. As a result, the challenge of recovery increasingly lies not only in a shortage of funding, but also in a lack of well-prepared, high-quality projects ready for implementation.

In this context, external expertise can serve as an additional resource. For example, BDO in Ukraine has practical experience supporting development and recovery projects, enabling it to assist local governments with project preparation, identifying funding opportunities, and structuring investment initiatives. Such support helps strengthen local capacity to secure funding and effectively implement recovery projects.

Specifically, BDO in Ukraine provides services related to the comprehensive assessment, preparation, and enhancement of investment projects, including market and financial analysis, the development of financial models, and the preparation of documentation in line with the requirements of international investors and donors. This helps improve project quality and increases their readiness to secure financing.

An additional challenge lies in the risk of overlapping responsibilities between central government institutions, regional administrations, and local authorities. When roles and responsibilities are not clearly defined, decision-making can be delayed, additional approval procedures may arise, and resources may be used less efficiently, particularly in recovery projects that rely on multiple sources of funding.

A similar challenge is the uneven level of coordination among municipalities during the planning of investment and recovery projects. Complex projects that affect multiple municipalities, such as water supply networks or major infrastructure assets, often face a high risk of duplication at the planning stage due to the lack of early coordination for their joint development and implementation.

Financing and Cooperation

Local budgets cannot finance recovery at the scale required on their own. However, local governments remain important co-financiers and contracting authorities for recovery projects. In 2025, dedicated state programs were established to support municipal and infrastructure recovery, while the Unified Public Investment Project Portfolio included 750 projects with a total value of UAH 2.36 trillion.⁷

A key mechanism for strengthening local capacity remains intermunicipal cooperation. Over the ten years since the adoption of the Law of Ukraine “On Cooperation of Territorial Communities,” more than 1,000 cooperation agreements have been concluded, enabling municipalities to jointly implement projects, delegate responsibilities, establish shared institutions, and co-finance common infrastructure.⁸

Beyond domestic cooperation, international partnerships between Ukrainian communities and municipalities in EU member states are continuing to expand, helping to attract funding and strengthen local governance capacity, including through the Bridges of Trust programme. The programme is implemented with the support of U-LEAD with Europe and the Council of European Municipalities and Regions (CEMR). In addition, the Association of Ukrainian Cities administers the National Database of International Partnerships, which already includes more than 1,700 intermunicipal partnerships between Ukrainian and foreign communities, highlighting the rapid growth of international cooperation at the local level.^{9, 10}

Private sector engagement is equally critical. Given the scale of Ukraine’s recovery needs, international organizations have repeatedly emphasized that public funding alone will not be sufficient. As a result, local governments are increasingly looking beyond traditional budget resources and seeking to attract private investment through public-private partnerships, cooperation with investors, and collaboration with international financial institutions.

Conclusion

Decentralisation has been one of Ukraine’s most important institutional reforms, laying the foundation for stronger, more financially capable local governance. In the context of the war, it has demonstrated its practical value by enabling municipalities to respond more quickly to local needs and play an active role in recovery efforts.

The next phase of Ukraine’s recovery will require more than financial resources alone. It will also depend on the ability to develop high-quality projects, ensure effective project management, and foster strong cooperation between the government, local municipalities, and businesses. The country’s long-term recovery success will largely be determined by how effectively these elements are combined.

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Використані джерела:

Central vs. Local Level: