Russia’s full-scale invasion of Ukraine has had a profound impact on the country. This chapter takes stock of the effects related to hydrogen, including demand for existing applications like ammonia and refining, as well as considering how future applications like steel have been affected. It also looks at the power sector, given that renewable hydrogen production needs a mature and well-functioning power market, and gas infrastructure that could potentially be used for hydrogen, reducing costs. It considers the macroeconomy, which can affect the cost of capital, labour available for hydrogen projects, and project costs. Finally, it looks at the financial situation of the country, since this affects the capital sources that could be used for hydrogen projects, as well as the perceived risks that affect the cost of capital.

Fertiliser, Ukraine’s largest source of hydrogen demand, consumed about 1 Mtpa before Russia’s invasion, but output has since fallen almost 80%. Natural gas demand for hydrogen production fluctuated between 3 and 6 bcm before the war (compared to a total gas demand of about 20 bcm), which would be equivalent to 675-1350 ktpa of hydrogen, with an average of roughly 1 Mtpa. Ammonia was produced in five facilities. One of them (Severodonetsk), representing nearly a quarter of the national technical capacity, was severely damaged during attacks in 2022 and taken out of operation. The remaining plants are operating at a largely reduced throughput and even periodicallyhalting operations. Overall, total fertiliser output was down almost 80% by August 2024 compared to 2021.

Exports of nitrogen-based fertilisers account for 40% of domestic production and 50% of agricultural output is exported, meaning domestic demand is not the primary driver of renewable ammonia. Both the fertiliser and agriculture industries are heavily export-oriented. Agricultural output has increased in the past two decades, using a larger share of domestic fertiliser production. In the early 2000s, fertiliser exports were approximately equivalent to 85% of domestic production, but by 2021 that fraction had decreased to 40%. In 2021, agriculture represented almost 11% of GDP and 41% of exports. The five largest exported products were sunflower oil, maize, wheat, rapeseed oil and barley. Nearly half of the production value was exported. In 2023, 40% less agricultural land was being farmed and the contribution of agriculture to GDP had decreased to 7%. Land mines and undetonated ammunition mean that about 30% of the land will require surveying before use for agriculture. In 2024, the availability of agricultural land has improved compared to at the beginning of the invasion, but is still 20% down from pre-invasion levels.

Hydrogen demand for refining was about 40 ktpa before Russia’s invasion but has since come to a standstill. Domestic oil production was falling well before the war. Between 2006 and 2020, domestic oil production fell by more than 40%. Similarly, net crude oil imports had decreased by more than 90% from their peak in 2003. This led to multiple refinery closures, leaving only one refinery (Kremenchuk) in operation before 2022, with two-thirds of its supply coming from domestic production and the rest from Azerbaijan and the United States. Refining throughput was about 80 kb/d. Based on the global average of hydrogen consumption for refineries1, this would lead to a hydrogen demand of about 40 ktpa. In 2022, the refinery was attacked with missiles on four occasions, leading to extensive damage. Looking to the future, Ukraine’s state-owned oil company, Ukrnafta, is aiming to increase domestic oil production by 50% by 2028.

Steel production has decreased by almost two-thirds since Russia’s full-scale invasion. No pure hydrogen is used today in the steel sector in Ukraine, but this sector provides one of the largest opportunities for use of low-emissions hydrogen and exports. Before the invasion, steel was an important sector of the economy, representing nearly 10% of GDP and a quarter of the exports, as well as 15% of the national CO₂ emissions. In 2013, there were 12 plants operating with a capacity of 42 Mt and production of 33 Mt. After the occupation of the Donetsk and Luhansk regions, this had fallen to 9 plants and 21.4 Mt of production by 2021, with total exports of 15.7 Mt, of which nearly one-third was to the European Union2. In 2022, two plants in Mariupol representing nearly half of the national output were destroyed. The plant in Luhansk (5.4 Mt) is in occupied territory, and has been out of operation since 2022. By late 2024, there were only 6 plants left, with a production of 6 Mt. This is still larger than domestic demand, which reached 3.3 Mtpa in 2023. Nearly two-thirds of the remaining production capacity uses blast furnaces, about 22% uses open hearth furnaces and 13% uses electric arc furnaces. Before the invasion, about two-thirds of the products were exported, and in 2023, exports still accounted for almost half of the production. The remaining steel plants are within 125 km of the occupied areas.

Iron ore exports in 2024 were 25% lower than in 2021 but iron ore is not a constraint on domestic steel production. Iron ore exports were 44 Mtpa in 2021. In 2022, Russia imposed a blockade on Ukrainian ports in the Black Sea, which led iron ore exports to decrease by nearly 45%. The volume of exports reached its nadir in 2023 with 17.7 Mtpa, but exports recovered in 2024 to nearly 34 Mtpa. These are only the exports: As a reference, the 6 Mtpa of domestic steel production would require about 10 Mtpa of iron ore3, meaning that if steel production recovers to its pre-war levels, iron ore production would be more than enough to meet the needs of the domestic market. 12% of Ukraine’s iron ore reserves are in occupied territory.

The war has severely affected water supply, with potential implications for hydrogen production. Nearly a third of the national water resources (equivalent to 55 000 million m³) is held in reservoirs to ensure continuous water supply. In June 2023, the Kakhovka reservoir, with a capacity of 18 200 million m³, was destroyed, with the reservoir losing 80% of its volume within a few days. The result was flooding in an area equivalent to about 2% of the country’s land, a reduction in drinking water quality affecting about 6 million people, and restricted access to water for sanitary purposes affecting more than 13 million people. It also disrupted the flow through the Dnipro-Kryvyi Rih canal, which provided cooling water to power and industrial plants in the Dnipro and Zaporizhzhia oblasts (regions). Water supply networks, pumping stations, wells, and treatment plants have been severely affected in the Donetsk, Luhansk and Kharkiv oblasts.

Russia’s full-scale invasion has led to a drastic decrease in available capacity leading to power deficit. Before the invasion, the total installed generation capacity was 55 GW, but only 44 GW was available due to infrastructure being underfunded and outdated. Attacks during the war have affected nearly 80% of thermal generation capacity and about two-thirds of the hydropower capacity, leading to a sharp decrease to about 15 GW ahead of the heating season in 2024. In contrast, peak demand during winter can reach 18.5 GW, leading to a power deficit of at least 3.5 GW, which could increase further with the continual attacks.

Renewables have been more resilient, aided by campaigns to repair war damage. In 2021, installed wind and solar capacity totalled about 9.5 GW. Since the beginning of the war there have been continuous attacks and subsequent reparation campaigns, which makes this capacity highly dynamic. For example, solar PV capacity was 8 GW in 2021, decreasing to 5.6 GW in 2024, but new capacity of 800-850 MW was installed in 2024. For wind, over 90% of the pre-war capacity of 1.7 GW has been occupied, damaged or destroyed, although capacity expanded by nearly 240 MW in 2023 and 20 MW in 2024. Thermal generation has seen large decreases with no new capacity coming online. Coal generation capacity stood at nearly 13 GW before the invasion. This was targeted by attacks, and only 3 GW remained in 2024. With this shift in installed capacity, the share of renewable generation was 13% in 2024, decreasing from 16% in 20214. This is despite 30% of solar capacity being disabled or occupied in early 2024.

Ukraine has four nuclear power plants (13 GW), with the largest (5.7 GW) currently in occupied territory and in cold shutdown. Nuclear generated 55% of Ukraine’s electricity before the war. All of Ukraine’s plants use pressurised water reactors using Russian technology, and 12 of the 15 operating reactors were built in the 1980s5. Two of the operating plants are in the west of the country and two in the south. The largest plant (Zaporizhzhia), which has six reactors with a total net capacity of 5.7 GW, was attacked in March 2022 and has been under Russian control ever since. During this time, there have been several incidents with implications for nuclear safety, including the loss of the main cooling water supply (associated with the destruction of the Kakhovka dam), a large fire in one of the cooling towers, direct drone attacks and complete loss of off-site power. The International Atomic Energy Agency has stated that the Seven Pillars of nuclear safety have been fully or partially compromised in the past 2 years. The plant stopped generating electricity for the national grid in September 2022 and all the reactors transitioned to cold shutdown in April 20246.

The interconnection capacity with the European Union has been expanded, reaching 2.1 GW in December 2024. Interconnection can provide resilience when generation is not enough. The Ukrainian system was well interconnected even before Russia’s invasion, with 31 cross-border lines connecting to Poland (up to 1 210 MW), Hungary (650 MW), Slovakia (400 MW), Romania (400 MW) and Moldova (400 MW). In March 2022, the continental European electricity grid and the grids of Ukraine and Moldova were synchronised. Since then, exports to Ukraine have been steadily increasing, reaching 2.1 GW in December 2024, which is equivalent to 11% of the peak demand. There are no signs of this capacity being affected by the war; on the contrary, capacity has actually expanded since 2022 with the restoration of the interconnector with Poland having been completed in April 2023. There are already projects to expand the capacity with Slovakia (1 GW) and Romania (1‑1.2 GW).

Industrial power consumption has halved, and residential demand has fallen by 20%. Large-scale centralised facilities have been targeted by attacks, leading to a sharp decrease in industrial demand. The decrease in the residential sector demand is a result of around 15% of the population fleeing the country since the beginning of the war. Energy efficiency has also contributed to the lower demand. Notably, a European Union-funded programme to replace incandescent bulbs with LED bulbs lead to a demand reduction of as much as 1 GW. The residential sector now represents the largest share of electricity demand, despite the 20% decrease.

There is a carbon pricing scheme covering power and industry with a price level of less than USD 1/t CO₂. A carbon tax for stationary sources in the industry, power and buildings sectors has been in place since 2010 and covers nearly 40% of national GHG emissions. The price level was increased from USD 0.02/t CO₂ in 2019 to USD 1/t CO₂ in 2021, and in 2024, the price level was close to USD 0.77/t CO₂ (mostly due to fluctuation in the exchange rate). In 2021, Ukraine announced plans to launch an Emissions Trading System (ETS) in 2025 to complement the carbon tax. The effect of the EU Carbon Border Adjustment Mechanism (CBAM), as well as fiscal implications, will need to be considered when designing the domestic ETS and price targets. Ukraine is looking for a temporary waiver from the EU CBAM until the domestic ETS is in place.

Ukraine’s vast gas infrastructure is being underutilised and has potential for repurposing for hydrogen. Ukraine has a gas transmission network of nearly 38 000 km with a design capacity of 281 bcm and an export capacity to the European Union of 146 bcm. In 2021, Russian gas exports to the European Union were 155 bcm, of which 40 bcm transited through Ukraine. Transit flows through Ukraine were as high as 90 bcm in 2019. In 2024, gas transit had shrunk to 15 bcm and following the expiration of Russia’s gas transit contract with Ukraine, the flow declined to zero from 2025. The technical feasibility of repurposing gas pipelines to hydrogen is still unclear and requires further analysis. Ukraine has 13 underground storage sites with a working capacity of 32 bcm. Nearly 80% of this capacity is in Western Ukraine and more than 90% was still in operation in 2024. In 2023, the stored volume was 2.5 bcm, but this dropped to nearly zero in 2024. Russia repeatedly targeted underground storage sites in 2024. The storage capacity is being used by foreign traders to provide additional margin for the 2024/2025 winter season. 

Ukraine is a natural gas importer with relatively small domestic gas production. Gas demand was shrinking even before the war, from 75 bcm in 2000 to 30 bcm in 20207. In the decade prior to the invasion, domestic production had remained relatively stable at 20 bcm, so while the net trade improved over time, one-third of the gas demand was satisfied with imports (from Russia until 2014 and from the European Union afterwards). After the invasion, gas demand dropped by a third to 20 bcm and production fell by 6% to 18.5 bcm, with similar numbers expected for 2024. With this level of demand, domestic proved reserves would be enough to maintain production for 60 years, but additional investment would be needed to increase production in order to satisfy potential gas demand for hydrogen production. Ukraine imported its first liquefied natural gas (LNG) cargo from the United States in December 2024 and imported 0.8 bcm in February-March 2025 from the European Union (by pipeline). Ukraine’s government expects that imports of at least 1 bcm will be needed in 2025.

Cost of capital can be decomposed into cost of debt and cost of equity. Both can be further split into risk-free rate (the interest rate paid for securities in a low-risk market, usually the United States), the country risk (which is composed of political and macroeconomic risks), the sector risk (e.g. renewables, steel), and the technology risk (related to technology maturity, supply chain, construction and operation). For the cost of equity, one common input parameter is the volatility of the equity market, which is usually approximated with the trends of the overall stock market index. However, in the case of Ukraine, the stock market has been closed since February 2022, so there is no indication of market volatility. This section touches upon how recent events have affected some of these factors.

The WACC was already above 10% in real terms before Russia’s full-scale invasion with significant effects for the cost of hydrogen. The International Renewable Energy Agency (IRENA) reported a WACC of almost 10% for solar PV and onshore wind in real after-tax terms for 2021, based on real project data with an average of 12.2% for 2019‑20218. Considering that inflation was 10% in 2021, this would be equivalent to 20% in nominal terms. In comparison, the WACC for both solar PV and onshore wind in a mature market like Germany was 1.3% in 2021. These values are for renewables, and hydrogen projects notably carry additional risks related to technology, market maturity and offtake, among others. These are considered as a fixed premium in this figure, but could be expected to weaken the case for hydrogen production in Ukraine, given the current lack of domestic offtake and limited experience with the technology. This WACC differential could lead to a 55% higher cost of renewable hydrogen production when compared to Germany9 which makes the case for hydrogen deployment more difficult. In absolute terms, this means an increase from USD 5.1/kg to USD 8/kg. This is significant, considering that the production cost for hydrogen from unabated gas in Europe was at around the same level – USD 3/kg10 – in December 2024. The conditions that enabled such a low WACC for Germany, including low interest rates, might not return any time soon. Nevertheless, this shows the wide gap between Ukraine and a potential market for its hydrogen exports, such as Germany. Most of this differential is driven by the country risk, which was already high before Russia’s full-scale invasion. If Ukraine can reach the same WACC level as targeted markets (e.g. through development finance, discussed in next chapter), then the levelised cost of hydrogen could be lower.

Government bonds have the lowest credit rating, and the country risk is at least 15%. One indicator of the country risk is the spread between the domestic bond yields and the yield of a mature market (such as the United States). In 2021, the yield of the 3-year government bonds11 in Ukraine was 13-13.5%, while the US Treasury bonds of the same maturity were 0.2-0.4% during the same period. In the last quarter of 2024, the yield of the Ukrainian bonds was 24%, while the US Treasury bonds were at 3.5-4%. Even when correcting for inflation, which in 2024 was 70% higher in Ukraine than in the United States, the spread has significantly widened due to the war, and the country risk premium is still well above 15%. Other estimates using USD and EUR found yield spreads of more than 23% when the full invasion started. Another indicator of country risk is the credit rating, which is continuously assessed by credit rating agencies12 and revised when there are significant events that could affect the ability of the country to repay its debts. This rating can be approximated to a country risk premium based on the credit default spread for country bonds that are traded. Ukraine’s rating has been deteriorating for the past 25 years, and in 2024, Ukraine partially defaulted on its debt, which led to a downgrade of its rating. Even for the lowest rating (which is still better than the rating Ukraine has today), the country risk premium would be equivalent to about 15%. Country risk is not the only factor to consider for the cost of capital; physical risk to assets and uncertainty about business continuity could also lead to large WACC increases even after the war ends.

The cost of capital for private companies might be higher than for the government. The credit rating of the private sector has also deteriorated during the war. DTEK, Ukraine’s largest renewables developer, was downgraded by Fitch in September 2024 to a status of restricted default. There is also a risk gap between the private sector and the government: In the case of government debt, international finance might help with repayment, but this is not an option for private debt, increasing the risk and the interest rates.

Debt accumulation and a retroactive tariff cut for renewables has led to lower confidence from investors, potentially translating into a higher cost of equity. A feed-in tariff (FiT) scheme (“Green tariff”) was introduced in 2009 to run until 2030. A publicly owned enterprise acted as a guaranteed buyer with rates fluctuating from EUR 0.46/kWh to EUR 0.15/kWh until 2019. The solar capacity expanded quickly from about 1.5 GW in 2016 to nearly 8 GW in 2021 (with the largest expansion taking place since 2019). However, the scheme was not financially sustainable, with the guaranteed buyer failing to pay the generators. In 2020, the Parliament approved a retroactive cut of up to 60%13. The total debt under the scheme was nearly USD 475 million in 2024 and only 55% of the payments for 2022 and 2023 were disbursed. There is little clarity on a robust repayment plan, which has affected confidence in the renewable sector, and the resulting uncertainty extends to renewable hydrogen. Even when repaid, this might be reflected in a higher cost of capital demanded by investors. In January 2025, Ukraine launched auctions for solar PV and wind, signalling the move away from FiT.

This section reviews the macroeconomic factors shaping the country, including population and fiscal budget, and explores how they can affect hydrogen development. The central bank interest rate gives an indication of the cost of debt, although debt could come from sovereign capital at early stages when the cost of local debt is high.

Population declined nearly 20% in the post-Soviet era and another 15% after Russia’s full-scale invasion. Ukraine had a peak population of nearly 52 million people in 1993, declining to 44.3 million in 2021. By February 2025, 6.9 million people had fled the country and another 3.6 million people had been internally displaced. The labour force decreased nearly 14% from about 17.7 million people in 2020 to 15.2 million in 2024. Evidence from 2022 (at a point when 4.7 million refugees from Ukraine had registered in the European Union) shows that in most EU member countries, 50-80% of the refugees were highly educated. A domestic survey in 2024 indicated that almost three-quarters of local employers are facing staff shortages. Some of the (relevant) vacancies that are proving most difficult to fill were for managers, engineers and business analysts. This may limit the availability of qualified staff to design, construct and operate hydrogen projects.

The war has caused a shortage of engineers and people with technical education. In a survey conducted in 2023 across 60 companies working in different fields, one-third reported that lack of candidates was their biggest recruitment problem, and almost one-quarter reported candidates having insufficient qualifications. Respondents also stated that the knowledge and skills of higher education graduates do not meet business needs. Electrical and chemical engineers were identified among the professions with the largest shortage at that time, with a shortage of mechanical engineers expected around 2028. The largest need for technicians was in industry, including steel, chemicals, mining and energy. The workforce is currently male-dominated, with men representing 58%, 65% and 71% of the workforce in the processing, energy, and mining industries, respectively.

Inflation had fallen to 13% in early 2025 from a peak of 26% in 2022. Before the war, inflation was at an average of 2.7% in 2020. In 2022, spikes in the prices of energy and food led inflation to increase to 26%. This came down to 13% in January 2025, which is still well above the 5±1% target of the central bank. The central bank expects inflation to increase further to 15% in 2025 and to reach 8.4% by the end of the year. For hydrogen projects, inflation could raise the costs of construction materials and labour during the construction phase, and could also affect the unemployment rate, with knock-on effects for the labour force available to work on hydrogen projects. Inflation can also make it more difficult for project developers to repay debts, if the nominal interest rates are based on a higher inflation rate that does not then materialise.

Central bank interest rates in 2024 were roughly double the levels before the invasion. In 2021, the central bank interest rate (known as the Key Policy Rate [KPR]) was between 6-9%14 In June 2022, as a response to high inflation, the central bank sharply increased the KPR from 10% to 25%. Inflation came down to 5% in the last quarter of 2023, which prompted KPR cuts reaching a level of 14.5% by March 2025. This is relevant to hydrogen projects because the KPR defines the interest paid by commercial banks, which in turn affects the loans made by those banks (in this case to energy or hydrogen projects). This makes the cost of debt higher. While the early stages of hydrogen development are expected to rely more on equity (due to the higher risk), and domestic commercial banks might be less involved at this stage (due to unfamiliarity with the business), it might still be relevant during later stages, depending on how long inflation remains high. It could also be relevant given the potential inflationary impact of additional capital flowing to the country for reconstruction efforts in other areas.

The domestic currency (Ukrainian hryvnia, UAH) has been devalued by about 50% since Russia’s invasion. A peg to the US dollar was introduced at the beginning of the war (29.25 UAH per USD). Due to the widening gap between the official and the shadow rate, the central bank devalued the hryvnia by 25% in July 2022 but decided to keep the peg. In October 2023, the peg was substituted with a managed floating and the currency has continued to depreciate since then. The relevance of this parameter as a currency exchange risk to the project is twofold. First, in the case that an investment is made by a foreign company in a hard currency (USD or EUR) while the revenues are in UAH. This could happen in the early stages of market formation, when infrastructure has not yet been developed, and demand is domestic. Second, there may be a positive effect in cases where the debt for the project comes from domestic bonds issued in UAH and (part of) the revenues come from exports. While there are known ways to manage this risk, it could still translate into a risk premium that is reflected in the WACC.

Sovereign-guaranteed bonds were restructured in September 2024 to reduce short-term payments. The restructuring was for a total of USD 20.5 billion. The upfront capital was reduced by 37% and debt servicing costs until 2033 were reduced by 77% (i.e. all the payments were delayed, allowing the country to recover and avoid the payment burden negatively affecting the fiscal situation). This was done by having a scaling interest rate of 1.75-3% in 2025-2027, increasing to 7.75% after 2034. These interest rates might have been affected by the simultaneous deployment of funds from the Extended Fund Facility of the International Monetary Fund (IMF). While the restructuring is understandable in the current context, it highlights an uncertainty for foreign bonds related to the length of the transition period following the end of the war, during which time such lower interest payments might be needed. Along the same lines, the Group of Creditors of Ukraine (comprised of all G7 countries except Italy) agreed to delay all interest payments until 2027.

The purpose of this section is to understand some of the capital flows needed to reconstruct the country, with emphasis on the energy sector. This will be useful as reference for the potential revenues and investment needs for the hydrogen sector discussed in the Chapter 2 ("The hydrogen opportunity").

Total damage15 in the first 2 years of the war amounted to USD 176 billion, of which USD 55 billion was to energy-related assets. By December 2024, the bulk of the damage has been to housing and buildings, amounting to nearly USD 58 billion. This is followed by transport infrastructure (including roads, ports, bridges) with USD 37 billion. Industry and commerce has experienced damage of USD 17.5 billion. Direct damage to energy assets amounted to USD 20.5 billion, and if indirect financial losses are included, total damage reaches USD 56 billion. An additional USD 65 billion of damage to natural ecosystems like forests, wetlands and biodiversity has also been estimated. Some of the most notable damage to energy assets was the destruction of the Kakhovka hydropower plant in June 2023.

By December 2024, reconstruction needs were estimated at USD 524 billion, nearly three times Ukraine’s GDP in 2024. Like for damage costs, the largest capital needs are in the housing sector, with the World Bank estimating capital needs of nearly USD 84 billion. Transport infrastructure (including ports and roads needed for hydrogen projects) comes second, with nearly USD 78 billion. Industry (together with commerce) requires USD 64 billion, and core energy assets require USD 68 billion. This has increased in the past couple of months. By August 2024, the needs for the energy sector were USD 50.5 billion for a complete restoration. As a comparison, Ukraine’s GDP in 2024 was estimated to be about USD 180 billion.

Public debt could reach nearly 100% of GDP in 2024 with nearly 80% in foreign currency. In 2021, public debt was about 54% of GDP. Government borrowing has been increasing ever since the financial crisis in 2008, with public debt going from 12% in 2007 to a peak of 70% in 2016. In absolute terms, public debt had reached nearly USD 155 billion by November 2024, having increased by nearly 60% since the beginning of 2022. Nearly two-thirds of this debt is foreign and almost 80% is in foreign currency. This means that inflation and currency exchange rates could affect the repayment of this debt, compromising the credit rating of the country. This could affect the cost of capital for hydrogen projects due to country risk and the cost of debt (through the KPR). Foreign reserves have been relatively stable since 2023.

Goods trade deficit reached USD 40 billion over 2022 and 2023. Exports nearly halved after the invasion, led by significant drops in steel and metals (the main export), ore minerals, and agricultural products. This has led to a trade deficit of about USD 2‑3 billion per month, which has been widening over time as more goods are imported. The IMF expects a trade deficit of USD 30-40 billion to persist until at least 2033. In 2024, international reserves have fluctuated around USD 40 billion, which would cover roughly six months of imports. The relevance this has for hydrogen is that low-emissions steel and renewable ammonia could help bring down the trade deficit, since they made up the bulk of exports before the war.

Fiscal deficit reached 23% of GDP in 2024 and no rebalancing is foreseen at least until 2033. Even before Russia’s invasion, Ukraine had a fiscal deficit of 4% of GDP in 2021. As military spending increased by nearly ten times in 2024, the fiscal deficit increased to 16% in 2022 and 23% in 2024. The IMF expects this to go down over time, but even in 2033, the fiscal deficit could still be 1%. The total financing needs for the 2025-2033 period could amount to more than USD 72 billion, nearly 40% of the current GDP. With a tight budget, hydrogen projects might be a relatively low priority for the government, leaving grants and development finance as the most likely sources of public capital in the coming decade.

Foreign direct investment (FDI) flows plunged by more than 90% after Russia’s full-scale invasion. FDI inward flows16 reached a peak of nearly USD 11 billion (in current prices) in 2008, before halving in 2009 as a result of the financial crisis, and turning negative in 2015 as a result of the Russian annexation of Crimea in 2014. By 2021, they had recovered to USD 7.3 billion, only to drop to USD 530 million in 2022. Nearly 80% of these flows are from reinvestment of earnings, which is higher than the historical average of 55% in 2018-2019. Almost 23% of FDI flows are in the manufacturing sector and 7% are in the power sector. The total FDI stock in 2023 was nearly USD 55 billion, with Arcelor Mittal being the largest investor, with USD 6.5 billion. The government established an investment promotion office (UkraineInvest) in 2018 with a mandate to attract and support FDI, and the office has facilitated the investment of nearly USD 2.3 billion since 2020. Ukraine has 65 bilateral investment treaties in effect and free trade agreements with 48 countries. This could facilitate FDI once the war ends.

By December 2024, nearly USD 430 billion of bilateral support had been committed for Ukraine, with two-thirds already allocated. From the committed capital, 48% is targeted to military and humanitarian causes. The European Union (without counting the member states) and the United States account for more than USD 250 billion. Nearly 40% of the support from the United States is going to the government budget that could eventually be used for energy. Part of the European Union’s support was through Macro Financial Assistance programmes, which covered aspects of energy security, energy efficiency, financial regulation of natural monopolies, and electricity market reform. The largest programme is the Ukraine Facility, with USD 50 billion over 2024 to 2027 to target EU accession, reconstruction, urgent financial needs (EUR 38.3 billion), de-risking and supporting the private sector (EUR 6.9 billion), technical assistance, capacity building and support to society (EUR 4.8 billion). By October 2024, the European Union, together with its member states and financial institutions, had provided a total of EUR 122 billion of financial aid to Ukraine, of which EUR 12.4 billion had been disbursed. In October 2024, the G7 launched the “Extraordinary Revenue Acceleration Loans for Ukraine”, a USD 50 billion initiative. The loans have a maximum of 45 years and will be fully disbursed by 2027. In addition, more than USD 200 billion of multilateral financing has been pledged for Ukraine, but it is mostly for non-energy purposes. This includes USD 151 billion from the IMF and USD 55 billion from the World Bank Group.

At the end of 2023, the weighted average cost of state debt was 6.2%, with an average maturity of 10.5 years. In 2023 alone, Ukraine received USD 42.5 billion in external financing. Nearly a quarter of this was in the form of grants, and the rest was in the form of concessional financing with lower interest rates or longer maturities. Over 50% of the funds were from international financial institutions and foreign governments, which together with external securities and loans from commercial banks, led to almost 70% of external (i.e. foreign) debt.