Evaluation of the Debt Potential of Regions and the Potential of the Municipal Green Bond Market of Ukraine (Herald UNU International Economic Relations And World Economy)

Summary

• The study builds a method for estimating local debt potential from Budget Code limits: a debt ceiling of 200% of average annual development budget revenue and a debt service limit of 10% of general fund expenditure.p.1
• Aggregate normative debt capacity is estimated at UAH 80–160 billion, or some 1.0–2.0 per cent of GDP.p.8
• Realisable debt capacity is estimated at UAH 25–80 billion.p.8
• Capitalising the debt service limit gives an equivalent debt stock of approximately UAH 291 billion on market-style terms and above UAH 400 billion on concessional terms of international financial institutions.p.3
• In 2021 Ukrenergo placed debut five-year sustainability-linked green bonds of $825 million.p.5
• The Ukraine Investment Framework, part of the €50 billion Ukraine Facility, aims to mobilise up to €40 billion of investment, with at least 20% of funding directed to green investments.p.5

Key insights

1. The binding constraint is the local debt stock limit, not the limit on debt service expenditure.p.1
2. The bottleneck is not solvency but the narrowness of the development budget revenue base, so liberalising debt limits would be ineffective.p.8
3. Municipal bonds cannot be the main channel for financing reconstruction, but can serve as a co-financing tool that raises the efficiency of grant and guarantee support.p.1
4. Village and settlement communities, the majority of territorial communities, have no access to the debt market apart from loans from international financial institutions.p.4
5. Local borrowing in 2024–2025 remained concentrated in Dnipro, Lviv, Kryvyi Rih, Mykolaiv and Ternopil.p.4
6. The 2025 restructuring of Ukrenergo's green bonds showed that a green label does not protect investors from issuer credit risk.p.5
7. Guarantee coverage under the Ukraine Facility mechanism can multiply the effect of communities' limited own debt capacity.p.5