This article of the U-LEAD series consolidates the main short-term (by 2027) and mid-term (by 2030) recommendations for strengthening Ukraine’s regional development policy and preparing for Chapter 22 and future EU Cohesion Policy implementation. More specifically, it sets out recommendations across six key areas: the legislative framework, institutional framework, administrative capabilities, programming, monitoring and evaluation, and financial management and control. It also highlights how Ukraine can use the overlapping reconstruction and EU accession processes to strengthen multi-level governance, territorial development and institutional capacity, while progressively aligning its regional development system with EU Cohesion Policy requirements.

 

By Ambre Maucorps, Federico Bartalucci, Donat Magyari, Andrés Rodríguez-Pose, Janez Šušteršič

Kyiv, 2026

 

CONCLUSIONS…

Ukraine stands at a historic juncture where post-war reconstruction and EU accession imperatives converge to create an unprecedented opportunity for transformative territorial governance reform. This Strategic Paper has examined the multidimensional architecture of effective regional development policy, demonstrating that successful decentralisation extends far beyond administrative reorganisation to encompass fundamental questions of institutional design, fiscal frameworks, capacity building, and democratic governance. International experience offers valuable lessons and underscores that Ukraine's unique context - ongoing conflict, massive reconstruction needs estimated at over EUR 500 billion, diverse territorial capacities, and ambitious European integration timeline - requires thoughtful adaptation rather than mechanical replication of foreign models.

The central argument holds that regional development policy represents not merely a technical domain but a strategic imperative for Ukraine's long-term viability, security, and European integration. Effective decentralisation can address territorial grievances that fuel instability, build institutional resilience against external threats, strengthen democratic legitimacy through proximity and participation, and create adaptive governance capacity to navigate unprecedented transitions. Conversely, poorly designed or inadequately implemented decentralisation risks exacerbating regional disparities, undermining service delivery, creating accountability vacuums, and weakening the Ukrainian state. The stakes could not be higher: Ukraine's reconstruction trajectory will shape its development prospects for decades.

The conceptual framework provides structured guidance for engaging with the complex design choices inherent in decentralisation reform. The five core dimensions - why, what, where, when, and how - emphasise that effective systems require coherence across multiple institutional domains. Clear articulation of objectives enables prioritisation when trade-offs emerge. Functional clarity in competency assignment, matched with fiscal resources, prevents unfunded mandates and responsibility gaps. Recognition of territorial diversity through asymmetric arrangements acknowledges capacity variations across Ukraine's vast territory. Careful sequencing proceeding at capacity development pace reduces implementation risks and enables adaptive learning. Robust mechanisms for coordination, accountability, and performance monitoring operationalise reform commitments.

The framework identifies five cross-cutting enablers as essential preconditions: coherent legal foundations; predictable fiscal systems; administrative autonomy; digital infrastructure; and stable political commitment. Ukraine has made non-negligible progress on several enablers - particularly legal frameworks following 2014 reform legislation and fiscal mechanisms through personal income tax sharing - yet persistent gaps remain in independent fiscal oversight institutions, comprehensive civil service reform at subnational levels, and systematic digital infrastructure for performance monitoring. Addressing these foundational enablers will prove essential for sustaining Ukraine's decentralisation trajectory.

European institutional practices demonstrate that effective regional empowerment requires deliberate construction of robust governance architecture. Legal clarity regarding competencies, exemplified by France's Territorial Organisation Law and Poland's self-government statutes, removes ambiguity and intergovernmental conflict. Structured coordination mechanisms - from Spain's sectoral conferences to France's contractual planning frameworks - align strategies across governmental levels without compromising autonomy. Professional regional development agencies provide technical capacity and project management expertise. Transparent fiscal equalisation systems - as demonstrated by Germany's Länderfinanzausgleich, redistributing over EUR 50 billion annually - ensure adequate financing. Systematic capacity building through dedicated training institutions addresses human capital foundations.

For Ukraine, international examples suggest specific institutional investments:

1. establishing an independent intergovernmental fiscal commission to systematically review equalisation formulas;
2. revitalising the Inter-Departmental Coordination Commission for Regional Development with genuine authority and regular meeting schedules;
3. strengthening oblast-level regional development agencies with enhanced analytical capabilities and project development expertise;
4. developing metropolitan governance frameworks for largest urban agglomerations balancing integration with local autonomy;
5. expanding inter-municipal cooperation arrangements for shared services achieving economies of scale; and
6. establishing a national training institution for subnational civil servants modelled on France's CNFPT or Korea's LOGODI.

 

Best-practice policy instruments demonstrate Ukraine can leverage proven approaches to maximise reconstruction effectiveness while building long-term capacity. Integrated territorial strategies offer pathways beyond fragmented sectoral interventions towards holistic frameworks addressing infrastructure, economic development, and social inclusion simultaneously. This can prove particularly critical given the reconstruction's opportunity to fundamentally redesign territorial development patterns rather than merely restoring pre-war structures.

Community-led development approaches align naturally with Ukraine's demonstrated civic capacity during wartime and successful hromada system. Smart specialisation provides actionable frameworks for economic transformation beyond commodity dependence, enabling each oblast to identify and nurture distinctive competitive advantages through structured entrepreneurial discovery processes. Regional innovation and cluster policies can leverage existing concentrations of specialised capabilities in IT, agricultural innovation, and advanced manufacturing. Performance-based grant mechanisms introduce accountability and efficiency incentives, all while maintaining regional autonomy.

Taken together, these instruments place Ukraine in a strong position for EU accession negotiations and access to pre-accession funding. The European Commission now increasingly expects candidate countries to demonstrate their ability to manage Cohesion Policy resources through smart specialisation strategies, partnership principles, multi-level governance structures, and results-focused monitoring systems. Developing this institutional capacity proactively during reconstruction - rather than reactively as membership draws nearer - will ease Ukraine’s transition into full participation in EU regional policy frameworks. It will also increase the effectiveness of domestic development efforts, generating virtuous cycles in which progress in one sphere reinforces advances in another.

Several cross-cutting themes emerge with particular urgency;

· First, institutional quality matters profoundly and more so than the resource quantity deployed. International evidence demonstrates regions with higher governance quality achieve substantially better development outcomes from comparable investments. For Ukraine, reconstruction funding cannot substitute for fundamental governance improvements in corruption control, administrative capacity, transparency, and participatory mechanisms.

· Second, capacity building requires sustained, systematic investment through permanent institutional infrastructure rather than sporadic training initiatives.

· Third, strong and sustainable financing mechanisms need to be developed for supporting development projects at the regional and local level; the initial steps can be made by adapting the current PIM system and modernising the SFRD. The modernisation should include ringfencing of funds channelled through the SFRD, moving towards regional/territorial envelopes based on objective indicators, and gradually shifting from financing individual projects to financing regional and territorial programmes managed by subnational authorities.

· Fourth, territorial diversity demands differentiated approaches through asymmetric devolution allowing capable jurisdictions greater responsibilities while simultaneously providing enhanced support to weaker areas; metropolitan governance frameworks suited to largest urban agglomerations; and inter-municipal cooperation arrangements enabling smaller jurisdictions to achieve economies of scale.

· Fifth, multi-level coordination mechanisms prove essential for coherence without recentralisation, requiring regularised platforms for joint planning, priority negotiation, and dispute resolution.

· Sixth, democratic participation and citizen engagement constitute core enablers rather than peripheral additions, serving multiple functions including harnessing distributed local knowledge, building stakeholder ownership, creating accountability pressures, and promoting social capital.

· Seventh, evidence-based policymaking supported by robust monitoring and evaluation systems enables adaptive governance through systematic collection and analysis of performance data, regular evaluation of intervention impacts, and transparency enabling public scrutiny and horizontal learning among regions.

 

The path forward requires balancing ambition with pragmatism, recognising both transformative opportunities created by reconstruction imperatives and EU accession prospects, and practical constraints imposed by ongoing conflict, limited administrative capacity in many territories, and fiscal pressures. Several priorities emerge as particularly critical for the medium term. Constitutional and legislative consolidation should entrench decentralisation gains in durable frameworks protected against arbitrary reversal. This requires preserving necessary flexibility for refinement, including clarifying competency boundaries in shared responsibilities like education and healthcare, strengthening fiscal autonomy through expanded own-source revenues, establishing independent oversight institutions, and codifying participatory mechanisms.

Capacity building investments need dramatic scaling, particularly through establishing a national training institution for subnational civil servants, expanding technical assistance programmes targeting smaller hromadas and less developed and/or more vulnerable oblasts. Such an action would require creating inter-regional learning networks and twinning arrangements, and developing digital governance infrastructure enabling data-driven decision-making. Reconstruction financing frameworks should be designed to build institutional capacity rather than bypass local authorities, through phased devolution of reconstruction management to oblasts and hromadas as they demonstrate readiness, performance-based funding rewarding transparent procurement and measurable outcomes, and technical assistance accompanying financial transfers.

Metropolitan governance development for Ukraine's largest urban agglomerations will enhance their global competitiveness and improve coordination of transport, spatial planning, and economic development across fragmented jurisdictions. Smart specialisation strategies should be developed for each oblast, identifying distinctive competitive advantages through entrepreneurial discovery processes involving government, business, research institutions, and civil society. EU integration preparation requires deliberate alignment with Cohesion Policy requirements well before membership, including demonstration projects testing ITIs and CLLD.

Local communities are already central actors in Ukraine’s reconstruction. To become effective partners in a future Cohesion Policy system, their existing roles must be qualitatively upgraded through targeted capacity development. Prioritising strategic integration, functional cooperation and compliance capacities, sequencing support through a maturity ladder, and leveraging EU–Ukraine territorial partnerships can ensure that reconstruction delivery simultaneously builds long-term Cohesion Policy readiness, in line with the findings of the Chapter 22 screening process.

In the pre-accession period, local communities’ primary contribution is to deliver reconstruction credibly while progressively adopting EU-compatible disciplines: a stable project pipeline, transparent procurement, basic internal controls, and results-focused monitoring. These functions can be embedded through reconstruction-financed programmes and national systems (including digital investment transparency tools) so that EU-style routines become standard practice before Cohesion Policy funds are available at scale.

After accession, the role of local communities shifts from “reconstruction implementers” to structured delivery partners within Cohesion Policy governance, operating under partnership and multi-level governance requirements and contributing to integrated territorial strategies (e.g. ITI-type approaches) where minimum viability conditions are met. This sequencing avoids a disruptive institutional jump: reconstruction delivery builds the operational experience; Cohesion Policy implementation then scales it under EU rules and assurance expectations.

In brief, Ukraine's regional development trajectory will fundamentally shape its prospects for sustained prosperity, democratic consolidation, territorial cohesion, and successful European integration. The dual imperatives of post-war reconstruction and EU accession create a window of opportunity to build modern, effective, and resilient systems of territorial governance. But effective transformation will only happen if reforms proceed thoughtfully, build systematically on international proven practices, and are adapted to Ukrainian realities. To achieve this, Ukraine also needs to invest adequately in institutional foundations, maintain stable political commitment across electoral cycles, and resist pressures for either premature recentralisation or inadequately supported devolution.

Regional development policy done well can address Ukraine's most fundamental challenges: reducing territorial disparities threatening national unity; building institutional resilience against external threats; strengthening democratic legitimacy through proximity and participation; enabling economic transformation beyond commodity dependence; attracting investment across all territories; and demonstrating administrative capacity essential for EU accession.

In fact, Ukraine’s preparation for EU accession in relation to Chapter 22 of the EU acquis has significantly forged ahead since gaining candidate status in 2022. To ensure that it can continue to progress efficiently under the current circumstances, Ukraine’s regional development policy framework needs to gradually transform along the key success factors and lessons learnt outlined in this Strategic Paper, thereby tackling the needs and shortcomings identified in the latest Ukraine Report.

 

 

…AND RECOMMENDATIONS

The main short-term (by 2027) and mid-term (by 2030) recommendations encompass:

1. Legislative framework

Short-term recommendations

• Resolve the potential ambiguity in shared competencies – particularly in education, healthcare, and social services where overlapping mandates between oblast, rayon, and hromada levels generate coordination failures and accountability gaps – by publishing a clear competency matrix aligned with the subsidiarity principle set out in Chapter 2’s what dimension: each function should sit at the lowest tier capable of delivering it efficiently, with unfunded mandates explicitly prohibited and expenditure assignments matched by commensurate revenue authority.
• Adopt enabling legislation establishing the legal basis for piloting ITI and CLLD instruments in selected higher-capacity territories, including provisions for joint governance structures across administrative boundaries, pooled multi-source funding streams, and formally constituted local action groups combining public, private, and civil society actors (drawing on the EU's 2014–2020 regulatory framework, which enabled metropolitan areas and functional regions to bundle resources from multiple priority axes into coherent territorial packages, and responding to the minimum viability conditions set out in Chapter 4: without an explicit legal basis permitting joint decision-making bodies, shared procurement, and cross-hromada programming, these instruments cannot move from concept to operational pilot regardless of local capacity or political willingness).
• Amend secondary legislation to operationalise subsidiarity in competency allocation, clarifying the distribution of responsibilities between oblasts and hromadas (along the lines of Poland's self-government statutes, which established clear voivodship–powiat–gmina divisions and proved essential for effective EU fund absorption after accession).
• Review and harmonise the legal framework for inter-municipal cooperation agreements to encourage their uptake beyond the current average of fewer than one agreement per community (drawing on Scotland's Community Planning Partnerships model, which formalised cross-sectoral collaboration through statutory structures and produced more integrated responses to local development challenges).
• Amend the provisions of the Budget Code regarding the SFRD in a way to:
  • Institute donations and loans from development partners as a supplementary source of SFRD financing,
  • Allocate a part of funds to technical support for local communities,
  • Tie the cofinancing requirement to the fiscal capacity of communities,
  • enable financing of multi-annual projects,
  • Enable the use of programme-based financing instruments and indicative financial envelopes for regions,
  • Enhance financing of non-investment projects and programmes, gradually phase out other subsidy programmes and merge them into the SFRD.

Mid-term recommendations

• Consolidate Ukraine’s fragmented decentralisation legislation into a unified Decentralisation or Local Government Code – identified in Chapter 2 as the primary legal cross-cutting enabler – providing the regulatory certainty and hard budget constraint framework that oblasts and hromadas need to engage in credible multi-year planning and investment, and that Chapter 22 assessors will expect as evidence of durable, constitutionally-grounded decentralisation.
• Consolidate subnational competencies in economic development, spatial planning, innovation support, and vocational training into a comprehensive Territorial Organisation Law (inspired by France's Loi NOTRe of 2015, which eliminated the three-tier ambiguity between regions, departments, and municipalities, strengthened regional strategic authority, and reduced intergovernmental conflicts that had previously hindered effective action).
• Enact legislation for asymmetric decentralisation through a capacity maturity framework permitting differentiated autonomy and functional responsibility across oblasts and hromadas based on demonstrated institutional readiness. As Chapter 2's where dimension establishes, identical templates imposed on vastly different territories risk overwhelming weak jurisdictions or constraining capable ones. Spain's autonomous communities system offers an instructive model, though adapted to Ukraine's unitary context by differentiating support mechanisms at the community level rather than granting constitutionally entrenched asymmetric powers at the regional level.
• Codify partnership principles, participatory mechanisms, and multi-level governance requirements as binding procedural obligations for regional programming – consistent with the additionality and partnership principles at the core of Cohesion Policy.

 

2. Institutional framework

Short-term recommendations

• Operationalise the partnership principle (Article 8 of the EU Common Provisions Regulation) in reconstruction programming by establishing formal partnership agreements that systematically involve regional and local authorities, economic and social partners, and civil society in the full programming cycle – as Chapter 2’s how dimension argues, sustainable territorial development cannot be achieved through centralised diktat alone but emerges from collaborative processes that harness the knowledge and legitimacy of multiple actors, and Ukraine’s wartime civic mobilisation provides exactly the social capital foundation on which this requires building.
• Revitalise the Inter-Departmental Coordination Commission for Regional Development by equipping it with a permanent secretariat, thematic working groups, and safeguarded voting rights for regional and municipal associations – closing the 'formality gap' and transforming it into a standing forum modelled on European countries’ Sectoral Conferences, which bring together national and regional development ministers quarterly to coordinate Cohesion Policy implementation.
• Establish a Regional Reconstruction Platform institutionalising donor coordination around a single pipeline of regionally prioritised projects – building on the Donor Coordination Platform created in 2023 and drawing on the model of France's State-Region Contracts (CPER).
• Establish an inter-municipal cooperation support facility within MinDev or through strengthened RDAs, providing legal templates, shared-service models, joint procurement frameworks, and technical assistance to hromadas seeking to pool functions. Financial incentives — such as preferential SFRD scoring or reduced co-financing thresholds — should reward formalised cooperation agreements. As Chapters 2 and 3 document, many hromadas lack the scale to manage complex development tasks independently, yet inter-municipal cooperation remains largely formal despite a permissive legal framework.

Mid-term recommendations

• Institutionalise cross-party political commitment to the decentralisation trajectory – the fifth cross-cutting enabler identified in Chapter 2 – through a formal multi-party agreement or constitutional provision protecting against recentralisation pressures across electoral cycles, recognising that in Ukraine, where regional disparities and historical divisions have challenged national unity, embedding decentralisation as an explicit nation-building strategy that strengthens citizens’ attachment to the state and builds the territorial cohesion essential for long-term resilience.
• Create regional innovation councils in each oblast, bringing together universities, firms, business associations, and regional government to coordinate smart specialisation priorities, align research investments with labour market needs, and facilitate technology transfer. As Chapter 3 documents through the Swedish and Finnish models, such councils provide the strategic fora needed to translate specialisation strategies into concrete outcomes — addressing the implementation gap whereby existing Ukrainian strategies lack both the stakeholder governance and the dedicated instruments to move from paper to practice.
• Strengthen oblast-level RDAs as regional project management offices with enhanced analytical capabilities, project development expertise, and blended funding competence – taking inspiration from models in the EU, which compensate for limited regional self-government capacity and facilitated structural fund absorption, and piloting programme-based ('global grant') envelopes administered by RDAs against agreed results rather than project-by-project competitions.
• Develop metropolitan governance frameworks for Ukraine's largest cities (Kyiv, Kharkiv, Odesa, Dnipro, Lviv), balancing integration with local autonomy and including ex-ante territorial impact assessments for major investments – drawing on the principles applied across EU Member States, including Germany's Länder-level coordination bodies and Sweden's regional growth partnerships, to ensure coherent urban development across fragmented jurisdictions.

 

3. Administrative capabilities

Short-term recommendations

• Develop standardised project preparation and management toolkits for hromadas, including templates for feasibility studies, procurement plans, cost-benefit analyses, and monitoring frameworks aligned with both PIM system requirements and Cohesion Policy expectations. As Chapter 5 documents, very few projects in the unified investment portfolio were initiated from the subnational level — not a single one from a territorial community — indicating that procedural complexity and insufficient technical guidance, rather than lack of local initiative, constitute the binding constraint on subnational participation in state-level investment programming.
• Differentiate implementation responsibilities and support by hromada maturity to match responsibilities and support measures to the actual administrative and implementation capacity of different types of hromadas, avoiding both overload of weaker communities and underuse of more capable ones. This can be achieved by applying a maturity-based approach to the allocation of delivery tasks and support measures, using transparent criteria linked to staffing, project preparation capacity, procurement performance and basic reporting reliability. This also implies applying strict capacity-first sequencing when devolving new reconstruction management responsibilities to oblasts and hromadas – as Chapter 2’s when dimension establishes, premature devolution reinforces rather than overcomes territorial inequalities when local institutional conditions are underdeveloped – pairing each new mandate with the training programmes, digital tools, and financial management systems needed to exercise it credibly, and using pilot programmes in higher-capacity regions before national rollout to enable evidence-based adaptation.
• Establish shared implementation support arrangements for weaker and war-affected hromadas, to ensure that communities with limited staff or specialised expertise can still participate credibly in reconstruction and territorial development delivery through access to shared functions such as project preparation, procurement support, contract management and reporting. These arrangements may be organised through inter-municipal cooperation, functional-area partnerships or other shared support structures, depending on territorial conditions and institutional feasibility.
• Introduce a mandatory certification programme for civil servants involved in EU integration and regional policy, ensuring a baseline of technical competence across all oblasts – drawing on Croatia's state examination system identified in Chapter 3 as directly applicable to Ukraine's context, complemented by structured EU–Ukraine twinning arrangements with counterpart administrations. Standardise core project preparation and project pipeline management functions at local level to improve the quality, comparability and readiness of local investment proposals and reduce fragmentation between local priorities and national / regional funding channels. This can be achieved by introducing standard project fiches, simple readiness criteria and prioritised project lists as a common minimum requirement for local project selection and sequencing.
• Introduce structured mentoring and implementation-oriented support for pilot territories to enable them to build practical implementation know-how (notably through direct support to selected municipalities and territorial partnerships preparing and delivering more complex instruments). This can be achieved by prioritising task-based support linked to real delivery functions, including governance arrangements for ITI/CLLD-type pilots, project pipeline consolidation, monitoring routines and compliance documentation.
• Strengthen the dedicated SFRD management unit within MinDev, to be able to manage an increasing level of funding and projects, with a view of developing the skills and practices required for a Managing Authority under Cohesion Policy rules.

Mid-term recommendations

• Prioritise merit-based civil service reform at subnational levels with competitive compensation structures, addressing the administrative cross-cutting enabler identified in Chapter 2 as essential for attracting and retaining qualified personnel – as the chapter documents, institutional quality rather than funding levels is the primary transmission mechanism determining whether regional development policies succeed or fail, and Ukraine’s 2014–2020 experience showed uneven benefits across oblasts precisely because of variable administrative capacity.
• Establish a national training institution for subnational civil servants with career-stage aligned curricula, mandatory participation requirements, and regularly updated content reflecting Chapter 22 obligations – taking inspiration from the models of France's CNFPT (serving 1.9 million territorial civil servants across 34,000 authorities with an annual EUR 1 billion budget) and South Korea's LOGODI (coordinating training for all 243 local governments).
• Establish dedicated capacity-building units within strengthened RDAs to provide continuous, on-demand technical assistance to hromadas across the full project cycle — from strategic planning and pipeline development through procurement, implementation, and performance reporting. These units should operate on a differentiated support model, concentrating resources on smaller, rural, and war-affected communities with the weakest administrative bases. As Chapter 2's when dimension emphasises, targeted capacity-building paired with peer-learning mechanisms is essential to avoid a two-speed system in post-war reconstruction, and Chapter 4's maturity ladder provides a practical framework for calibrating the intensity of support to each community's demonstrated readiness level.
• Establish durable support arrangements for weaker and war-affected territories, to reduce structural disparities in access to project preparation, procurement, contract management and reporting functions, so that weaker communities are not excluded from territorial development and reconstruction instruments because of limited administrative capacity. This can be achieved by progressively replacing ad hoc, project-based or donor-dependent assistance with more stable support arrangements embedded in the territorial development system, including shared services, inter-municipal support mechanisms and other permanent implementation support functions.

• Create inter-regional learning networks and twinning arrangements that enable knowledge transfer from stronger to weaker communities – institutionalising the lessons of Trostyanets and Mena, where place-based leadership and structured civic dialogue transformed peripheral municipalities into local role models, and scaling this through a national peer-learning infrastructure.
• Expand programme-type implementation functions at subnational level where readiness is demonstrated, to gradually widen the role of capable subnational actors in managing integrated territorial interventions and more structured development programmes. Expansion should be conditional on demonstrated performance in project preparation, implementation, monitoring and compliance, rather than formal status alone.
• Expand the group of territories able to use integrated territorial instruments to move beyond a small number of pilots and prepare a wider set of communities and functional areas to participate credibly in ITI / CLLD-type approaches and other integrated territorial interventions. Expansion should be based on demonstrated readiness, including functioning governance arrangements, prioritised and coherent project pipelines, and basic monitoring, reporting and accountability systems.
• Align local implementation arrangements more closely with programme management requirements to prepare local and territorial delivery systems for the transition from project-based reconstruction towards more structured programme implementation under EU-style regional policy. Local arrangements should gradually incorporate multi-annual priorities, clearer intervention logic, stronger results orientation and more structured links between local strategies and funding instruments.

 

4. Programming

Short-term recommendations

• Embed a polycentric, place-based logic in reconstruction programming frameworks, moving decisively away from the spatially-blind, uniform sectoral templates that Chapter 2 identifies as generating inferior development outcomes: this means mapping investments against each territory’s distinctive assets and capacity level, differentiating support intensity accordingly, and actively promoting functional linkages between Kyiv and regional growth poles (Lviv, Kharkiv, Odesa, Dnipro) to prevent hyper-concentration of reconstruction benefits in a single metropolitan core.
• Introduce a Strategic Planning Gateway including territorial impact screening for all major strategic and investment decisions, including major reconstruction investments above a defined threshold, requiring promoters to demonstrate consistency with SSRD priorities, assess distributional effects, and identify synergies with other interventions in the same functional area. This should also ensure that key proposals are assessed before approval for territorial coherence, budget realism, implementation readiness and consistency with the broader regional development framework, and would prevent the cumulative spatial bias that arises when projects are assessed solely on sectoral merit. In practical terms, the Gateway should be used first for SSRD-linked documents, major investment proposals and selected reconstruction-related initiatives with significant territorial impact.
• Pilot ITIs only where minimum viability conditions are met to enable pilot territories to build practical experience with ITI / CLLD-type approaches without overextending administrative systems or creating formal instruments without operational foundations. Such pilot territories should be selected on the basis of governance readiness, pipeline discipline, territorial coherence and the availability of basic monitoring and reporting arrangements. For instance, ITI-type integrated territorial approaches could be piloted in at least two oblasts, bundling reconstruction, infrastructure, and economic development funding within coherent territorial frameworks – drawing on the EU's 2014–2020 experience where metropolitan areas such as Warsaw and Barcelona used ITIs to coordinate urban regeneration with sustainable mobility and digital investments, moving beyond the fragmented sectoral approaches that currently limit synergies and multiplier effects in Ukraine's reconstruction.

• Scale CLLD through hromada-based local action groups combining public, private, and civil society actors – building on the LEADER/CLLD evidence documented in Chapter 3 showing that community-led approaches generate higher citizen ownership and project sustainability compared to traditional grant programmes.
• Establish a limited set of common decision points for strategic prioritisation, coherence checks, budget alignment and annual review to reduce fragmentation between reconstruction planning, sectoral interventions, regional development priorities and territorial investment decisions. This can be achieved by applying these common decision points at the stages of strategy update, programme preparation, budget alignment and performance review, while allowing sectors and territorial levels to retain differentiated implementation horizons.
• Anchor rolling project approval within an agreed medium-term programming logic to preserve flexibility in project selection while preventing disconnected ad hoc approval practices and improving the link between project pipelines and strategic priorities. Rolling approval may continue, including under the SFRD, provided it operates within previously agreed priorities, indicative envelopes and programme logic.
• Strengthen the territorial logic of sectoral and reconstruction programming to ensure that large-scale investments and sectoral programmes contribute more clearly to territorial cohesion objectives and do not bypass regional and local development priorities. This can be achieved by requiring territorial impact justification and, where relevant, a regional breakdown of intended results for selected high-impact sectors and major investment packages.

• Simplify the PIM system for the subnational level in a way to remove the requirement of state-level sectoral assessment for regional and local investment projects and programmes that do not require state budget financing or support, give the local communities an option of preparing a local unified project portfolio without first preparing local sectoral project portfolios.
• Gradually increase the SFRD budget funding to the target of 1.5% of the state’s budget general fund. With ensured stability of financing, replace the current annual project list approach with project approval on a rolling-basis.

Mid-term recommendations

• Develop a formal asymmetric devolution framework for reconstruction programme design and management that assigns greater programming authority to oblasts demonstrating sufficient institutional maturity – grounded in Chapter 2’s where dimension, which establishes that identical administrative structures imposed on vastly different territories either overwhelm weak jurisdictions or constrain capable ones – while simultaneously providing enhanced deconcentrated support and reduced co-financing requirements for conflict-affected and less-developed territories. This can be achieved by broadening the use of indicative territorial envelopes and more differentiated programming approaches where data, institutional capacity and monitoring arrangements are sufficiently mature.
• Develop oblast-level Smart Specialisation Strategies through genuine entrepreneurial discovery processes involving government, business, research institutions, and civil society – closing the documented implementation gap where existing strategies replicate the current economic profile without identifying transformative pathways (drawing on the Basque Country (advanced manufacturing, energy, biosciences) and Slovenia (smart factories, sustainable mobility) as models to build competitive advantages in Ukraine's distinctive capabilities including IT services in Kharkiv and Lviv, miltech, and logistics in western Ukraine).
• Expand integrated territorial approaches on the basis of proven pilots to build a broader base for place-based, multi-sector territorial interventions consistent with future Cohesion Policy practice. This can be achieved by gradually scaling integrated approaches, using pilot experience to define governance templates, programme design standards and eligibility conditions for wider use.
• Shift the SFRD from annual project-by-project competitions towards programme-based territorial envelopes, delegating selection of individual projects to the competent subnational authority. This creates local ownership, permits inclusion of non-investment measures such as business support or skills development, and — through a formula inversely related to regional GDP and proportional to population — concentrates support on territories with the largest development gaps while reducing the risk that weaker communities are crowded out by more competitive proposals from stronger regions. The transition from fragmented project support towards programme-based territorial interventions should, in turn, increase strategic coherence, predictability and results-orientation. In practical terms, this can be achieved by expanding the use of multi-annual priorities, clearer intervention logic and programme-type implementation arrangements where administrative and monitoring conditions have been demonstrated.
• Consolidate stronger alignment between national, regional and local strategies and funding channels to turn strategic planning into a genuine programming function that guides the design of instruments, territorial targeting and investment decisions across levels of government. This can be achieved by strengthening the regular interaction between strategy revision, programme preparation and resource allocation so that strategic priorities increasingly shape actual funding choices.
• Develop a more coherent architecture for reconstruction, regional development and sectoral programming to reduce duplication across instruments and improve the system’s ability to steer territorial development across multiple funding channels and policy areas. This can be achieved by clarifying the respective roles and interfaces of SFRD, sectoral investment portfolios, line-ministry programmes and territorially targeted instruments within a more consistent strategic and programming framework.
• Develop a methodology for assessing the geographical designation of projects and programmes financed from the state budget and take measures to ensure inclusion of potentially misrepresented least developed territories and regions.

 

5. Monitoring and Evaluation

Short-term recommendations

• Clarify the institutional separation between implementation and monitoring functions in pilot instruments to reduce the risk of self-reporting bias and improve the credibility of monitoring results during the pilot phase of programme-type instruments. In the short term, this principle should be first applied to selected pilots and to the emerging programme logic of instruments such as the SFRD, without waiting for a full system-wide redesign.
• Build on Ukraine’s existing transparency infrastructure (ProZorro, mandatory online budget publication) to operationalise the multi-axis accountability model set out in Chapter 2’s how dimension: upward accountability through performance monitoring frameworks; downward accountability to citizens through mandatory public disclosure of reconstruction expenditure and participatory budgeting; and horizontal accountability through independent audit and anti-corruption oversight – treating these three axes as an integrated system rather than isolated compliance exercises.
• Define a minimum monitoring and steering dataset and integrate emerging digital investment transparency systems into routine strategic reviews, prioritising territorial effect indicators alongside programme outputs – addressing the current compliance-oriented monitoring culture identified in Chapter 3. This should ensure that decision-makers have a manageable and reliable evidence base for prioritisation, coherence checks and annual review, even under wartime data constraints. Practically, this should start with a limited set of common indicators and data fields linked to project pipelines, territorial priorities, implementation progress and basic financial traceability (rather than attempting full indicator completeness from the outset) and make use of existing systems (including DREAM, ProZorro and relevant GIS-based tools) to generate routine evidence for coordination reviews, project readiness checks and performance discussions.
• Introduce annual performance reviews linked to budgeting and coordination decisions to create a practical mechanism for adjusting priorities, pipelines and instruments in light of implementation evidence rather than relying only on ex post reporting. Annual review should focus on a limited set of questions: delivery progress, territorial distribution of investments, implementation bottlenecks, and the need for corrective action in the next programming and budgeting cycle.
• Embed integrity red-flag indicators — such as non-competitive procurement, repeated contract amendments, cost overruns, and delayed reporting — into DREAM and GIS-RD dashboards, linking them to risk-based verification triggers. As Chapter 5 argues, integrity risks are controlled through system design rather than generic anti-corruption declarations. Automating early detection through existing digital platforms strengthens ex ante prevention, reduces the burden of ex post controls, and builds the audit trail that Chapter 22 assessors will expect.
• Adopt simplified cost options and outcome-focused monitoring indicators aligned with Cohesion Policy requirements (drawing directly on Lithuania’s post-2021 reforms which consolidated seven intermediate bodies to two, introduced outcome-focused monitoring, and mainstreamed simplified cost options, accelerating absorption and producing clearer accountability lines identified in Chapter 3 as an inspirational model for Ukraine’s future management and control system design).
• With the SFRD being considered as a public investment programme in the unified project portfolio of the state, limit the CMU approval to approving the total SFRD funding as part of such portfolio. The government level monitoring should be limited to indicators and reports on the SFRD as a programme, while monitoring of individual projects should be the responsibility of MinDev. 
• In parallel with increasing the SFRD funding, develop a performance framework for the SFRD and create a SFRD monitoring committee based on the partnership principle. The monitoring committee should approve the objectives and priorities of the SFRD, approve project selection criteria, review performance and commission periodic evaluations to monitor the results and impact of the SFRD.

Mid-term recommendations

• Institutionalise regular territorial performance reviews for programme-type instruments and integrated territorial pilots and consolidate results-oriented territorial monitoring systems that synthesise monitoring evidence, assess strategic priorities, progress towards territorial development objectives and the combined effects of different interventions across territories, and trigger investment pipeline adjustments – embedding the learning-oriented review cycle that is a defining feature of effective Cohesion Policy management, with clear procedural consequences for persistent territorial underperformance and linkage to ICC decisions and annual budget preparation. In other words, monitoring should move beyond pipeline and compliance tracking towards a more stable framework linking strategies, programmes, territorial indicators and outcomes.
• Establish evaluation units in RDAs and oblast administrations, building a regional evaluation culture with capacity for impact assessment and horizontal learning among regions (drawing from Poland’s regional operational programme experience, where the development of regional evaluation cultures was identified in the Chapter 3 as a key success factor in effective EU fund management, and contributing to the evidence base for Chapter 22 accession dialogue).
• More generally, develop more mature territorial performance analysis across funding channels to improve the system’s ability to understand how different instruments and sectoral investments interact territorially and whether they support or weaken cohesion objectives. This should include stronger analytical use of comparable territorial data across reconstruction, regional development and sectoral interventions, with a view to supporting more coherent future programming.

 

6. Financial Management and Control

Short-term recommendations

• Reform the SFRD allocation formula to link transfers to both fiscal capacity and reconstruction needs, with reduced or waived co-financing requirements for war-damaged and fiscally weak hromadas, and a dedicated technical assistance line for project preparation (applying the principle of Germany’s Länderfinanzausgleich that transparent formula-based equalisation provides adequate resources while preserving mobilisation incentives, and addressing the documented risk that the current 10% co-financing threshold structurally biases SFRD distribution towards stronger communities).

• Clarify the delineation between the SFRD and state-level sectoral project portfolios, establishing explicit eligibility rules that prevent duplication and ensure local authorities are not required to promote the same project through both channels simultaneously. The absence of clear boundaries between the two mechanisms creates confusion, doubles administrative burden, and risks an unintendedly biased territorial distribution of state budget support that no single institution currently tracks or maps.

Mid-term recommendations

• Expand the SFRD with performance-based elements linking funding allocations to measurable results, procurement transparency, and management quality (drawing on Poland’s performance grants system identified in Chapter 3) as transforming grant programmes from passive funding mechanisms into active drivers of institutional improvement, and introducing regional financial envelopes based on objective indicators to concentrate support on territories with the largest development gaps.
• Establish an independent intergovernmental fiscal commission tasked with periodically reviewing equalisation formulas, monitoring the adequacy and predictability of subnational revenues, and advising on prudent borrowing frameworks for local authorities. Chapter 2 identifies predictable, rule-based intergovernmental finance as a critical cross-cutting enabler, and Germany's constitutionally mandated fiscal equalisation system demonstrates that independent oversight strengthens credibility and reduces the political manipulation associated with ad hoc transfers. For Ukraine, such a commission would also provide the institutional anchor needed to manage the transition from wartime fiscal centralisation towards the stable, transparent subnational financing framework that Cohesion Policy implementation will require.
• In parallel with increasing the SFRD funding, develop a system of financial controls, including verification of expenditures and on-the-spot checks, as well as auditing requirements (including performance audit) in line with Cohesion Policy requirements.

The overlapping EU accession process-reconstruction period needs to build the bases for future, transformative change. By following these recommendations, Ukraine will certainly advance towards the decentralised, transparent, participatory, and effective governance system that is necessary to drive inclusive, sustainable, and territorially cohesive development across all Ukrainian regions for generations to come.

 

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This article was prepared by Ambre Maucorps, Federico Bartalucci, Donat Magyari, Andrés Rodríguez-Pose and Janez Šušteršič for the Vienna Institute for International Economic Studies (wiiw) within the project “Support to the Decentralisation Reform in Ukraine”, supported by U-LEAD with Europe. It is derived from the Strategic Paper “Strategic vision of regional development policy: short-term and mid-term recommendations for Ukraine’s alignment with Chapter 22 of the EU acquis”, which aims to support Ukrainian policy-makers in designing and implementing a robust regional development policy in line with EU rules and practices. The article contributes to this objective by outlining a strategic vision for Ukraine’s regional development policy, with particular relevance to Chapter 22: Regional Policy and Coordination of Structural Instruments and future EU Cohesion Policy implementation.

The views expressed in this article are those of the authors and do not necessarily reflect the views of wiiw, U-LEAD with Europe, the European Union or its Member States Germany, Denmark, France, Austria, Poland and Slovenia.

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Ambre Maucorps is an Economist at the Vienna Institute for International Economic Studies (wiiw), specialising in EU regional policy and the impact of EU funding on regional economic development.

Federico Bartalucci is an economist who holds a degree from the University of Exeter and an MSc in Local Economic Development from the London School of Economics.

Donat Magyari is an independent development economist and U-LEAD expert with 30 years of professional experience, specialising in digitalisation, disruptive and user-driven ICT innovation, and technology-enabled development.

Andrés Rodríguez-Pose is the holder of the Princess of Asturias Chair and Professor of Economic Geography at the London School of Economics and Political Science (LSE), where he also directs the Cañada Blanch Centre. Professor Rodríguez-Pose chaired the European Commission’s High-Level Group on the Future of Cohesion Policy, which provided strategic recommendations on the future direction of EU Cohesion Policy.

Janez Šušteršič is a former Minister of Finance of Slovenia and an international expert for U-LEAD with Europe.

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Next – and final - article of the U-LEAD series will be the overall Strategic Paper: “Leveraging reconstruction and EU accession for regional development: Strategic vision of regional development policy - short-term and mid-term recommendations for Ukraine’s alignment with Chapter 22 of the EU acquis” by Ambre Maucorps, Federico Bartalucci, Donat Magyari, Andrés Rodríguez-Pose and Janez Šušteršič. This Strategic Paper will be the compendium of articles being published under the U-LEAD series during last couple of weeks. It will on one please outline approaches to a decentralised and polycentric model of regional development, modern regional policy instruments, capacity building for local communities, coordination and financing mechanisms, and will conclude with short- and mid-term recommendations to prepare Ukraine for Chapter 22 and future EU Cohesion Policy implementation.