Will the Fund for the Liquidation of the Consequences of Armed Aggression Work?

In October 2022, the Parliament voted on amendments to the Law on the State Budget for the corresponding year, creating a fund for the liquidation of the consequences of armed aggression. This is a special fund within the state budget to cover a significant part of the country’s reconstruction needs: construction of public buildings and shelters, reconstruction and repair of critical infrastructure, housing for IDPs and persons who lost it as a result of hostilities.

According to the project damaged.in.ua, as of the end of January, the total amount of direct damage caused to Ukraine’s infrastructure due to the war increased to almost USD 138 bln. And that’s just infrastructure. Accordingly, TI Ukraine noted the expediency of such a legislative initiative — the country really needs to organize the liquidation of the consequences of Russian armed aggression. At the same time, we drew attention to the fact that the procedure for filling and using the fund needed improvement.

It was planned to replenish the fund exclusively at the expense of funds seized from the aggressor. Back in May, the Verkhovna Rada approved the decision to forcibly seize the assets of two subsidiaries of russian banks. However, due to long delays — both with the opening of a special account of a state-owned enterprise and with a change in the government’s position on the disposal of assets — the process of transferring funds significantly dragged on. Only in December, the Deposit Guarantee Fund transferred UAH 17 bln to the special state budget fund.

The fund was created, even the funds were transferred. But the Cabinet of Ministers has not approved the procedure for their use. Therefore, at the end of 2022, financing for the restoration of critical infrastructure and other facilities was mainly continued at the expense of funds from the reserve fund of the state budget.

More money in 2023

The state budget for 2023 provided for the creation of the fund, and the sources of filling it were partially expanded. First of all, at the expense of 50% of transfers of the National Bank of Ukraine to the state budget. This year, this amount will be UAH 35.5 bln. Another part of the proceeds will be provided at the expense of the forcibly seized funds of the aggressor state, that is, the already mentioned russian banks, in the amount of UAH 17 bln. But the planned revenues will not be enough even to finance individual expenditures — the country needs more than a billion dollars for the restoration of the energy system alone. And if the fund is to be a real mechanism to meet the country’s recovery needs, we cannot do without additional sources of its replenishment.

Back in 2022, we recommended that the funds received from the confiscation of the assets of sanctioned persons be directed to the recovery needs. The High Anti-Corruption Court has already issued the first judgements regarding russian parliamentarians, businessmen, and Viktor Yanukovych. Recently, it has also completed the consideration of the case against the russian oligarch Oleg Deripaska — the SSU estimated his confiscated assets at UAH 10 bln. These and other assets should work for the restoration of our country and at the end of February, the parliament finally supported the corresponding changes.

What will they be spent on?

Compared to the previous year, a part of the fund’s expenditures was excluded. We are talking about the purchase of computer equipment for educational institutions, compensation for damage to life and health caused by armed aggression, and the construction of housing for orphans. At the same time, the purchase of school buses remained, although UAH 1 bln is provided for their purchase in the budget from the general fund. Another EUR 14 mln was allocated by the European Commission, which already sent 270 units of equipment to Ukraine as part of a charity campaign with partners.

The issue of transporting children to educational institutions is undoubtedly important, but not a priority in comparison with the restoration of critical infrastructure or the provision of housing for IDPs and persons who lost it as a result of armed aggression. Moreover, the funding directly can be provided through donor assistance. The lack of proper prioritization of the areas of financing is a significant risk that can lead to inefficient spending of budget funds and underfunding of part of the expenditures.

The changes to the budget, recently voted by the Parliament, will also allow directing the resources of the Fund for the construction or reconstruction of military facilities, and in general for the defense needs “in exceptional cases.” By what criteria will this exclusivity of a particular case be determined? The law does not answer this question. Of course, financing defense needs is a priority for our country. But the unregulated use of the fund’s resources can deepen the problems of the Ukrainians, who will receive the right to compensation or reconstruction of housing damaged or destroyed as a result of the war.

These changes are also risky in terms of the potential to attract international financial assistance as an additional source of replenishment of the fund. Some partners, such as the EU, demand that Ukraine direct the funds received exclusively for humanitarian purposes and not finance the sphere of defense and security at their expense. But a direct indication in the law of the possibility of building military facilities and the use of funds for defense purposes can become an obstacle to attracting resources from international partners to the fund for the liquidation of the consequences of armed aggression, from which the reconstruction of the country is planned to be financed. 

How the resources of the Fund will be used: the Procedure of the Ministry of Finance

The Cabinet of Ministers eventually approved the Procedure for the use of resources from the fund for the liquidation of the consequences of armed aggression. But there are questions.

The funds will be allocated exclusively to the regions and territorial communities classified as the territories of restoration:

  1. where the hostilities took place;
  2. which were temporarily occupied;
  3. which suffered destruction of critical infrastructure, social infrastructure, housing facilities as a result of hostilities;
  4. which have a sharp deterioration in socio-economic development and a significant displacement of the population.

Regions and territorial communities should be classified as the territories of restoration by a special commission formed by the Ministry of Infrastructure. As of today, there is no clear list of such territories. According to the study, as of December last year, 530 territorial communities suffered destruction of critical infrastructure and housing stock.

The projects for which the resources of the fund will be allocated should be included in the regional recovery and development plan, which will be part of the overall recovery and development plan of the regions. Draft regional plans will be developed by the relevant local state (military) administrations. The Law “On the Principles of State Regional Policy” provides that local councils will individually develop plans for the restoration and development of territorial communities. However, they will not be able to get resources from the fund. Local self-government bodies will be forced to coordinate their recovery projects with regional state (military) administrations so that they are included in regional recovery and development plans and can receive the resources from the fund for the liquidation of the consequences of armed aggression. This will not only violate their interests on recovery issues, but also contains a corruption risk due to the excessive powers of the RSA (RMA). 

Housing for internally displaced persons is to be provided on a temporary basis at the expense of the fund. Such housing should be suitable for living — without the need to carry out current or major repairs, with furniture and necessary household equipment. But such conditions will not apply to the housing purchased for persons who lost it as a result of hostilities — they will cover the relevant costs at their own expense.

To purchase housing at the expense of the fund, the government has established a marginal cost per square meter. It will not exceed the indirect cost of housing construction by regions of Ukraine, determined by the Ministry of Communities and Territories Development. As of October 2022, Kharkiv (20,487 UAH/sq.m.) and Donetsk (20,473 UAH/sq.m.) oblasts had one of the highest indicators of the cost per square meter, Kherson Oblast had one of the lowest (17,734 UAH/sq.m.). The approach to the procedure for determining indicators has not changed since 2005, in fact, since it was approved. This is reflected in the price — according to the studies (12), the average market value of one square meter of primary housing in Ukraine is higher than the indirect cost determined by the government by more than 30%. Therefore, finding high-quality and modern housing purchased at the expense of the fund is unlikely.

In general, the issue of purchasing housing is not properly resolved. The resolution adopted by the government does not answer all these questions, such as what the procedure for obtaining such housing is, what categories of citizens will be able to claim it, what its characteristics will be (type, area), where it will be located. Moreover, the Parliament voted for the draft law No. 7198 in the second reading, which introduces compensation for damaged and destroyed property. The mechanisms provided by the resolution and the draft law for allocating funds to purchase housing for persons who have lost it are different and will require coordination.

To allocate the resources of the fund, applicants — local state (military) administrations — will apply to the Ministry of Restoration, and as far as energy infrastructure, school and medical transport are concerned — to the Ministry of Energy, the Ministry of Education and Science, and the Ministry of Health, respectively. Those, in turn, will provide generalized proposals of the applicants to the Cabinet of Ministers, which will decide on the allocation of funds. At the same time, there are no criteria for the selection and prioritization of projects — they will all be evaluated by the ministries, “considering the satisfaction of the priority needs of the population.” This approach creates a space for abuse and corruption. 

There are also questions about the procedure for allocating funds. There is no mechanism for coordinating relevant decisions with the Verkhovna Rada Committee on Issues of Budget, although such a requirement is mentioned in the law on the State Budget for 2023. We drew attention to the fact that the need for approval will increase the role of the political component in the process. The consequences of this may be abuse in the financing of individual expenditures or blocking funds. At the same time, the decision of the government must be consistent with the requirements of the law.

There are enough shortcomings and risks in the Procedure for using the Fund’s resources, but is there any real possibility to eliminate them? In our opinion, yes. Changes to the state budget for 2023 transfer the budget program “Fund for the Liquidation of the Consequences of Armed Aggression” from the Ministry of Finance to the Ministry for Communities, Territories and Infrastructure Development of Ukraine. This is a good initiative because it is this body that will formulate and implement the state policy in the field of restoration of regions, territories, and infrastructure affected by the armed aggression of russia.

Transparency International Ukraine and Rise Ukraine Coalition provided their proposals to the draft Procedure for the Use of the Fund’s Resources, initiated by the Ministry of Restoration. However, eventually, the government adopted an alternative option developed by the Ministry of Finance. Therefore, we expect that the Ministry of Restoration will initiate changes that will consider the interests of local self-government bodies on recovery, ensure a transparent approach to the selection of projects for financing and the effective use of funds to meet the country’s recovery needs.


The Fund for the Liquidation of the Consequences of Armed Aggression was created to ensure priority measures for the restoration of critical infrastructure affected by hostilities. However, the financing of these or any other expenditures was not provided. Last year, the bureaucratic procedures were an obstacle: government officials argued for too long how to dispose of, in fact, a small part of the funds of the aggressor state, until the budget period was over.

In 2023, a legislative settlement may become an obstacle. The Parliament has taken a step towards more efficient replenishment of the fund, but the list of expenditures needs to be revised. The procedure for the use of funds also contains shortcomings — the provisions of this document do not provide for a transparent approach to the selection of projects that will be financed at the fund’s expense, limit the access of local self-government bodies, and contain corruption risks of granting excessive powers to local administrations and individual ministries.

Will the fund be able to become an effective tool in 2023 under such conditions? It is unlikely, without changes to the law.

This publication was made possible by the support of the American people through the United States Agency for International Development (USAID). The contents of this publication are the sole responsibility of Transparency International Ukraine and does not necessarily reflect the views of USAID or the United States Government.

For reference: The Support to Anti-Corruption Champion Institutions Program in Ukraine (SACCI) is a seven-year initiative of the United States Agency for International Development (USAID), which aims to assist Ukraine to combat corruption and increase accountability and transparency of governance in Ukraine. The program seeks to empower key government institutions to fight corruption, build public support for and engagement in anti-corruption efforts, reduce citizen tolerance to corruption, as well as ensure maximum transparency and accountability of Ukraine’s post-war reconstruction and recovery.