WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

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

Russia’s full-scale invasion of Ukraine has caused extensive destruction and immense human suffering. Frontline regions have been disproportionately affected, and pre-war territorial disparities have widened significantly. At the same time, Ukraine has made notable progress on its path towards EU accession since being granted candidate status in June 2022. In its 2026 Enlargement Package, released today, the European Commission underlines this continued progress but also notes weak alignment between reconstruction needs, territorial development objectives and sectoral priorities.

Accounting for around one third of the EU budget, Cohesion Policy is the Union’s principal investment instrument for reducing socioeconomic disparities between its more and less developed regions. For Ukraine, access to Cohesion Policy funding will be critically important. However, this requires robust multi-level governance systems capable of programming, disbursing, and monitoring substantial financial resources in line with EU standards of transparency and accountability.

Ukraine now stands at a historic crossroads. The two interconnected transformation agendas – EU accession and post-war reconstruction – will fundamentally reshape its territorial governance and development trajectory. In this context, a strategic vision for the country’s regional development policy must go beyond administrative reform and address core issues of territorial equity, economic recovery, and national security. Several cross-cutting themes are decisive as Ukraine develops an EU-compatible regional development policy.

• First, institutional quality is paramount and matters more than the quantity of resources deployed. Reconstruction funding cannot substitute for improvements in corruption control, administrative capacity, transparency, and participatory mechanisms.
• Second, capacity-building requires sustained and systematic investment in permanent institutional infrastructure rather than sporadic training initiatives.
• Third, strong and sustainable financing mechanisms must be put in place to support development projects at the regional and local levels.
• Fourth, territorial diversity calls for differentiated approaches through asymmetric devolution.
• Fifth, effective multi-level coordination mechanisms are imperative to ensure coherence without recentralisation.
• Sixth, democratic participation and citizen engagement are essential for drawing on local knowledge, encouraging stakeholder ownership, strengthening accountability, and building social capital.
• Seventh, evidence-based policymaking – supported by robust monitoring and evaluation systems – enables adaptive governance.

For Ukraine, the path forward requires a careful balance between ambition and pragmatism. This means recognising both the transformative opportunities created by EU accession and post-war reconstruction as well as the practical constraints imposed by the ongoing conflict, limited administrative capacity in many territories, and fiscal pressures. Crucially, constitutional and legislative consolidation should embed the gains of decentralisation in durable frameworks that protect them against arbitrary reversal.

Key priorities include clarifying the division of responsibilities in shared policy areas (e.g. education and healthcare,) strengthening fiscal autonomy through increased own-source revenues, establishing independent oversight institutions, and codifying participatory mechanisms. At the same time, capacity-building efforts must be expanded for subnational civil servants, smaller municipalities (hromadas), and less developed regions (oblasts).

Regional development policy will play a pivotal role in post-war Ukraine. If designed and implemented effectively, it can help address the country’s most pressing challenges: reducing territorial disparities that threaten national unity, strengthening institutional resilience against external threats, enhancing democratic legitimacy by bringing government closer to citizens and encouraging participation, enabling economic transformation beyond commodity dependence, attracting investment across all territories, and demonstrating the administrative capacity required for EU accession.