Financing Ukraine’s Local Recovery

Executive Summary 

Ukraine’s international partners have assembled a recovery financing architecture of substantial scale. Whether that architecture reaches the country’s small or medium-sized municipalities, however, depends on how the financing is structured. Several factors—how instruments are designed, how lending is denominated against local revenues, what project preparation national systems demand, and how a crowded field of actors is coordinated—determine what a small- or medium-sized municipality can realistically absorb. 

This brief analyzes those dynamics, asking where bottlenecks are most acute, and under what conditions smaller municipalities are better positioned to engage with recovery financing. It draws on work conducted through the German Marshall Fund’s (GMF) Ukraine Cities Partnership (UCP), including engagement with the UCP pilot city, Korosten, in Zhytomyr Oblast. It also draws on a broader mapping of the international assistance landscape, stakeholder consultations, and published recovery assessments. 

The brief ’s recommendations are addressed to six actor categories: international financial institutions (IFIs) and bilateral donors, the Ukrainian national government, intermediary organizations, municipalities, private sector and institutional investors, and city associations and peer networks. 

Recovery financing reaches a municipality through a pathway, not a single transaction. A public investment project must move from concept through preparation, appraisal, and aggregation before it becomes financeable at all, and where that pathway is incomplete, available capital does not convert into implemented outcomes. 

The analysis points to several areas where targeted changes would meaningfully improve municipal access: 

• Preparation and implementation capacity. Strengthening this across staffing, financial management competencies, technical documentation, and institutional support functions is a foundational condition for financing access. Whether a municipality can prepare a bankable project, apply for a grant, or engage substantively with an IFI depends on capacities that many small or medium-sized municipalities currently lack and that existing and emerging programs are only beginning to address systematically. Treating that preparation support as a funded component of recovery programming, rather than as a precondition municipalities must meet before financing becomes accessible, would address the bottleneck at its source. 
• Currency risk. Even highly concessional loan financing can become financially unmanageable at a small or medium-sized municipal scale when repayments are structured in hard currency against revenues collected in hryvnia. Grant and near-grant instruments, alongside public and private sector de-risking strategies, are under current conditions the realistic means of managing this exposure, whether through grant resources used to absorb currency risk within an otherwise standard loan or dedicated hedging instruments for emerging market currencies. 
• Proportionate project approval. Smaller municipalities face the same complex, labor-intensive project approval process as larger cities before they can access either public or international financing, since both run under the same public investment management rules, despite having far fewer staff and technical resources. More proportionate requirements would make it easier for small or medium-sized municipalities to move viable projects into the financing pipeline, for instance through a differentiated compliance pathway calibrated to administrative capacity. 
• Intermediary organizations. They perform a function the current financing system does not consistently recognize or resource. Many municipalities depend on their support to navigate financing systems, prepare public investment projects, interpret technical requirements, and maintain engagement with donors and IFIs after passing the mandatory public investment management procedures. Formally embedding these organizations’ functions within recovery implementation frameworks, and establishing a unified system that registers international assistance and links donor opportunities to municipal needs, would improve financing access in practice. 
• EU accession. As the process advances, municipalities will increasingly need support navigating EU procurement and social and environmental compliance requirements that are already shaping access to IFI financing and will become more consequential as EU instruments grow in importance. Without that support embedded now in existing technical assistance structures, the access constraints municipalities face today risk carrying over directly into future EU financing channels. 

These conditions also shape the extent to which more complex and innovative financing approaches, including blended finance and public-private partnerships, can realistically operate at smaller, municipal scale. In practice, their viability depends on project preparation, sequencing, and public sector de-risking being in place first. Beyond those preconditions, two specific mechanisms can widen access for small or medium- sized municipalities: aggregating smaller municipal projects into portfolios that reach viable financing scale, and enabling municipalities to pledge tax receipts into dedicated accounts as repayment guarantees where conventional collateral is unavailable. 

The access conditions that this brief documents do not affect all municipalities equally. Cities that have already built institutional relationships and project track records enter the financing landscape from a materially different starting point. The brief ’s recommendations are directed at the policy, financing, and intermediary conditions that determine whether the recovery architecture can function across Ukraine’s full geographic and institutional range.

The views expressed herein are those solely of the author(s). GMF as an institution does not take positions.