In 2025, municipalities raised €104.3 million through local borrowing and guarantees — more than 2.5 times less than in 2024. At the same time, the number of new loans increased by 19% to 37 agreements. This was still 31% below the 2021 level, before the full-scale invasion, when municipalities concluded 54 agreements and raised a total of €842.7 million. In 2022, the volume of financing fell sharply to €50.7 million, after which the market began to recover gradually.

These findings are presented in the KSE Institute Center of Public Finance and Governance study “Local Borrowing and Guarantees During the War: An Analysis of Key Trends,” which covers 2021–2026.

The analysts attribute the decline in financing volumes in 2025 to the new public investment management (PIM) rules, stricter requirements for project preparation and approval, and the partial replacement of loans with international grants. Data from early 2026 indicate that some municipalities have already adapted to the new requirements and are again raising financing more actively.

Urban municipalities remain the main borrowers. In 2025, urban councils concluded 31 of the 37 new loan agreements, or nearly 84%. Kryvyi Rih and Dnipro municipalities signed four agreements each, Lviv three, and Samar and Kamianske two each. Rural and settlement municipalities only gained access to local borrowing in 2024: in 2025, four rural municipalities and two settlement municipalities used this instrument. Their limited activity is linked to a shortage of specialists, smaller and less stable budgets, and limited experience with borrowing.

New direct loans are raised primarily from state-owned banks. In 2025, 40% of loan agreements were provided by Ukrgasbank, 30% through the Ministry of Finance using European Investment Bank funds, 16% by Ukreximbank, and 11% by Oschadbank. At the same time, international financial institutions account for the largest share of accumulated debt: more than UAH 11.1 billion is owed to the European Bank for Reconstruction and Development and more than UAH 9.2 billion to the European Investment Bank. International financing is increasingly channeled through Ukrainian banks, meaning that a loan legally classified as domestic may in fact be funded by an international institution.

In 2025, 63% of new financing was raised in hryvnia and 37% in euros. The volume of hryvnia-denominated loans increased to UAH 4.66 billion, while foreign currency loans declined to €38 million. Interest rates on hryvnia loans were mostly 16–18% per annum, compared with more than 20% in 2024. Euro-denominated loans are generally cheaper and better suited to large infrastructure projects, but they carry exchange-rate risk. New agreements increasingly use variable rates with rate caps to limit potential increases in debt service costs.

As of April 30, 2026, total local and guaranteed debt stood at UAH 28.6 billion. External debt amounted to UAH 15.2 billion, or 53.1%, while domestic debt stood at UAH 13.4 billion, or 46.9%. More than half of all liabilities — UAH 15.9 billion, or 55.8% — consisted of guaranteed debt, primarily loans taken out by municipal utilities. The largest debt volumes were concentrated in Dnipropetrovsk region at around UAH 5.8 billion, Lviv region at UAH 5.7 billion, the city of Kyiv at more than UAH 3.1 billion, Kharkiv region at around UAH 2 billion, and Mykolaiv region at UAH 1.6 billion.

A total of 96.8% of municipalities have no active local debt, while only nine have used more than one-third of their debt limit. Nearly 99% of all active local borrowing, worth more than UAH 28 billion, is held by urban municipalities. The average available debt limit is $4.31 million per municipality, with a median of $1.48 million. For urban municipalities, the average stands at around $11 million, compared with $1.49 million for rural municipalities. The main constraint, therefore, remains municipalities’ willingness to use borrowing instruments and their capacity to prepare investment projects.

The market picked up noticeably in early 2026. In January–April, the volume of hryvnia-denominated loans increased to UAH 264 million from UAH 105.6 million in the same period of 2025, while foreign currency borrowing rose to more than UAH 1.07 billion in hryvnia equivalent, compared with UAH 24.9 million. Most new financing once again came in the form of euro-denominated loans. The average approval time for loans by the Ministry of Finance declined to 35.3 days in 2025 from 45.5 days in 2024, while the average approval time for guarantees fell to 19.2 days from 82.3 days. At the same time, applications that did not meet the new requirements were returned for revision.

An additional source of financing for municipalities is expected to come from the EU’s Ukraine Investment Framework under the Ukraine Facility. €796 million has already been approved for programs in which municipalities or their municipal utilities act as direct borrowers. Of this amount, 71.5% is provided in guarantees, 26% in grants, and 2.5% in technical assistance. The funding is intended primarily for heat supply, water supply and wastewater treatment, energy efficiency, public transport, and other local infrastructure.

At the same time, as of July 2026, municipalities had actually received only €30.2 million, or around 4% of the approved amount. Further market recovery will therefore depend on municipalities’ ability to prepare high-quality investment projects, obtain the required approvals, and move from approved programs to signed contracts and actual disbursement of funds.