Ukraine's Budget Black Hole: Where the Billions Go

Ten million people receive money that barely keeps them above destitution, and the system is drifting toward demographic collapse at a speed that can no longer be ignored.

The proposition that "wherever Ukraine spends the most, things look the worst" is confirmed with surgical precision. The largest civilian expenditure — social protection and pensions — yields the worst return per hryvnia of any budget category. Roads, into which over 200 billion was poured in two years of the "Big Construction" programme, remained in a state of disrepair. Education, costing 5.9% of GDP — more than Poland — produces PISA results on a par with Romania. But the undisputed champion in resource absorption without commensurate return remains the pension system.

The Pension Fund: A Machine That Eats the Budget

Formally, the Pension Fund of Ukraine has been running "without a deficit" since 2019–2020. This is an accounting sleight of hand. The structural gap between the Fund's own revenues from the unified social contribution and actual pension expenditures reaches 240–300 billion hryvnias annually. That gap is simply transferred onto the state budget as a direct subsidy. In 2025, the PFU budget stood at 1,025 billion hryvnias — over a trillion. Of that, own revenues amounted to roughly 570 billion; the remaining 354 billion hryvnias were covered by the state. That is more than the entire budget for healthcare, education or infrastructure.

The demographic catastrophe sharpens the picture further. In 2021, there were 868 pensioners per thousand social contribution payers. By 2024, the figure had reached 945. The system is moving toward parity: each working Ukrainian is effectively supporting one retiree. In the EU, the ratio is three-to-one or better. The number of pensioners fell from 10.8 million at the beginning of 2022 to 10.2 million at the start of 2026 — a million fewer in four years, driven mainly by death rather than any reduction in systemic burden. Six million refugees, the lowest birth rate in Europe, war losses — all of this is eroding the contributor base.

A comparison with neighbours exposes the scale of the failure. Italy spends 15.5% of GDP on pensions and pays an average of €1,550 a month. Poland — 10.8% of GDP and €465. Ukraine — 11% of GDP and $153. The same share of GDP, a fundamentally different outcome. The minimum pension in 2025 is 2,361 hryvnias, or roughly $56 a month — barely above the global poverty line. Over 50% of pensioners receive less than 5,000 hryvnias — below the real subsistence minimum of 6,685 hryvnias.

Real purchasing power has fallen consistently despite nominal growth. In 2022 inflation hit 26.6%, in 2023 — 12.4%, in 2024 — 12–15%. Pensions grew more slowly. In 2024–2025 nominal growth was 10%, while prices rose 11.9% — real purchasing power fell by 2%. In the first three years after retirement, the average Ukrainian pensioner loses 30% of their payment's real value through inadequate indexation. In 2025, 33,000 court cases were filed by pensioners seeking proper indexation.

Ghost Pensioners and Billion-Hryvnia Schemes

The first ever full international-standard audit of the PFU, conducted by the Accounting Chamber in 2024, exposed systemic breaches. Around 800,000 pensioners on temporarily occupied territories had not undergone physical identification for over 2.5 years but continued to receive payments — representing 7.7% of the entire PFU budget. Some are simultaneously collecting both Ukrainian and Russian pensions — no verification mechanism exists. By January 2026, 337,000 pensioners who had failed verification were removed from the payments register. But others remained.

The audit found addresses in radioactive contamination zones and mountain districts where six to thirty people were registered at a single address — in order to claim inflated pension supplements. Court rulings approving such "supplements" cost the PFU 66.5 billion hryvnias in 2022–2023 alone. Legislative loopholes created additional liabilities of 70+ billion hryvnias — disability pensions, military pensions, Chornobyl allowances. Corporate debts to the PFU reached 50.3 billion hryvnias, while the Fund's own unfulfilled court-ordered liabilities stood at 73 billion hryvnias — 10% of the annual budget — with no identified source of repayment.

The highest-profile scandal of 2024 — the MSEK affair — demonstrated corruption functioning as a system. The head of the Khmelnytskyi medical commission (MSEK), Tetiana Krupa, was detained with 21.5 million hryvnias in a Polish bank account. Her son Oleksandr headed the regional Pension Fund office — a family corruption conveyor. Fifty prosecutors in Khmelnytsk had fraudulent disability status, drawing pensions ranging from 2,000 to 80,000 hryvnias a month. The SBU revoked 4,106 falsified MSEK certificates. Sixty-four officials received suspicion notices; nine were convicted. The scandal forced Prosecutor General Kostin from office. Following a National Security Council decision, the MSEK system was dissolved in late 2024. The estimated scale of abuse — roughly 4 billion hryvnias annually from fictitious disability claims alone — reveals how deeply corruption has penetrated the social welfare architecture.

Roads: Billions Into Cracking Asphalt

The second-largest black hole is road infrastructure. Prior to 2020, 95% of Ukraine's roads were in a state of disrepair — this despite 14–50 billion hryvnias spent annually from 2014 onwards. The "Big Construction" programme launched by Zelensky in 2020 was the most ambitious infrastructure project in independent Ukraine's history. Over two years — 2020–2021 — more than 200 billion hryvnias was poured into roads. Around 14,000 km were built or repaired. But the numbers conceal a toxic detail.

In 2018, 3,800 km of roads were built for 40 billion hryvnias — an average of 10.5 million hryvnias per kilometre. In 2021, 7,288 km were delivered for 132 billion. The cost had risen to 20.7 million hryvnias per kilometre — a doubling in three years. Moreover, most of the work constituted current and routine maintenance, which is not subject to state acceptance inspection and is not quality-controlled. The Accounting Chamber recorded payments to contractors for work not performed, absent laboratory testing of surface materials, and double-billing of VAT to Turkish company Onur for 75.5 million hryvnias.

The corruption chain running through "Big Construction" became the subject of a NABU investigation. In December 2022, officers searched the homes of programme coordinator Yurii Holyk and Dnipropetrovsk regional head Valentyn Reznichenko. A company called Budinvest Inzhinyrynk, co-owned by a close associate of Reznichenko, received contracts worth more than 4 billion hryvnias. Maksym Shkil's company Avtostrada tendered 47 billion hryvnias in 2021. Former Ukravtodor head, Polish national Sławomir Nowak, was arrested on corruption charges. In 2020, 53% of the COVID-19 Fight Fund — 25.7 billion out of 78.4 billion — was redirected not to medicine but to Ukravtodor.

The war destroyed more than "Big Construction" had built: over 25,000 km of roads were damaged or destroyed, 344 bridges damaged or demolished. In 2024, all funds in the State Road Fund — 94.7 billion hryvnias — were redirected to defence. In 2025, the Fund was abolished. Roads are no longer receiving dedicated funding. The Paton and Metro bridges in Kyiv are in an emergency state, with corrosion affecting up to 80% of structural elements. Of Ukraine's 28,000 bridges, 9–10% are assessed as emergency structures; half have not been inspected in three years.

Healthcare: A Reform Without Money

Healthcare is the third sector where the gap between expenditure and outcome is impossible to ignore — though here the picture is more complex. Nominally, the budget grew from 60 billion hryvnias in 2013 to 217 billion in 2025 — a threefold increase. But most of that growth is inflationary. Health expenditure as a share of GDP — 7.6–8.2% — looks comparable to Poland (6.8%) or Romania (6.5%). In absolute per-capita terms, however, Ukraine spends $370 — the lowest in Europe. The continental average is $3,554.

The consequences are predictable. Life expectancy stands at 73.4 years (2023) — five years below Poland (78.5), three below Romania (76.2). Cardiovascular disease kills 65% of Ukrainians — one of the worst rates in Europe. Tuberculosis occurs five times more frequently than in Poland, fourteen times more than in Slovakia. Patients pay 46.3% of medical costs out of pocket — one of the highest rates in Europe, where the norm is 12–35%.

The NHSU reform has achieved some results: 31.6 million Ukrainians have registered with a primary care physician; the medical procurement agency MPU has saved over $200 million; prices for cancer and hepatitis C drugs have fallen by a factor of two or three. But NHSU tariffs cover only one-third of the real cost of medical services. Before the war, 984 hospitals faced budget deficits of 10–50% after the transition to the new financing model. The war compounded the damage: 200+ facilities destroyed, 1,600+ damaged, losses estimated at $1.4 billion, with reconstruction costs projected at $14.2 billion over a decade. Equipment in most hospitals is either outdated or absent.

Education: Spending More Than Poland, Getting Romania's Results

This sector best illustrates the "more money, worse results" paradox. Ukraine spends 5.9% of GDP on education — more than Poland (4.35%) and significantly more than Romania (2.9%). Nominal expenditure rose to 392 billion hryvnias in 2022 and over 410 billion in 2025. But the 2022 PISA results are stark: 428 points in reading — down 38 points from 2018, equivalent to 2.5 years of lost learning — 441 in mathematics, 450 in science. Poland, with a smaller GDP share, scores 489 points — 50–60 points higher in every category. Only 59% of Ukrainian students reached the baseline level in reading, against 74% across the OECD.

The infrastructure is deteriorating: the number of schools has fallen from 22,210 in 2000 to approximately 12,300 in 2025. New school construction is virtually non-existent — one school opened in 2016/17. The number of teachers has fallen by 16% over five years; the proportion of young teachers (under 30) has dropped from 14% to 10%. The war destroyed or damaged 3,373 educational institutions — more than 10% of all infrastructure. Only 25% of schools can offer full-time in-person instruction. The projected teacher deficit by 2030 is 366,000.

A data envelopment analysis of public spending efficiency shows that Ukraine extracts relatively decent results per dollar spent — the problem is not how efficiently money is used once it arrives, but the catastrophically low absolute expenditure per pupil: $37,800 cumulatively over years 6–15 of schooling, against $75,000+ in most OECD countries. The bulk of the education budget goes to salaries — 108 billion hryvnias in teacher pay subsidies for 420,000 teachers — leaving almost nothing for infrastructure, equipment or innovation.

Defence: Corruption in an Existential War

Defence spending is a separate category, where the moral weight of inefficiency acquires particular gravity. Before 2014, Ukraine allocated just 1% of GDP to defence — a subsistence budget where 80% went to personnel costs. After the Donbas war began, spending rose to 2.5–4% of GDP, but as analysts noted, it "generated no momentum for modernisation — it merely covered operating expenses." Presidential adviser Yurii Biryukov stated publicly in 2015: "Approximately 20–25% of the funds allocated to the Ministry of Defence are stolen."

Ukroboronprom became the symbol of corruption in the defence sector. Journalists at Bihus.info in 2019 documented a scheme involving the procurement of smuggled Russian spare parts through intermediaries at five-times-inflated prices — at a minimum €9 million. NABU investigated cases totalling $37 million. After 2022, the volumes grew — and so did the corruption. The "egg scandal" — army eggs purchased at 17 hryvnias instead of the market price of 7 — became the emblem, but behind it lay contracts worth $1.14 billion with prices inflated two- to threefold. Winter jackets for the Ukrainian Armed Forces were purchased at $86 each when the Turkish market price was $29 — totalling $30 million. Minister Reznikov resigned in September 2023.

But the largest corruption scandal of the Zelensky presidency was Operation Midas — a 15-month covert NABU investigation. Timur Mindich, co-owner of Kvartal 95 and a close personal friend of the president, through proxies at Energoatom controlled all contracts, demanding 10–15% kickbacks. Approximately $100 million passed through the scheme in total. Fire Point — a company that, before the full-scale invasion, was a casting agency for Kvartal 95 shows — was receiving up to 10% of defence procurement contracts. The fallout: two ministers dismissed, Chief of Staff Yermak resigned, Mindich and his partner Tsukerman fled the country, seven individuals charged.

In 2024–2025, Ukraine spent 34% of GDP on defence — $64.7 billion — the highest rate in the world. Together with Western aid, actual expenditures reached $125 billion — fourth globally. As SIPRI researcher Diego Lopez da Silva observed, "Ukraine is currently spending ALL its tax revenues on the military."

The Bureaucracy: Fewer People, Higher Costs

The paradox of public administration illustrates the problem from a different angle. In three years of full-scale war, the civil service shrank by approximately 30% — from 200,000 to 156,000 employees. But maintenance expenditure for state agencies rose by 14.3 billion hryvnias in 2025. The average civil servant's salary is 62,000 hryvnias a month — 3.4 times the national average. The leadership of the Central Election Commission — 18 people — receives 310,300 hryvnias a month, despite no elections being held under martial law. Senior NACP officials: up to 366,600 hryvnias.

World Bank Worldwide Governance Indicators confirm that these expenditures do not convert into outcomes. Ukraine remains in negative territory across all six governance parameters: government effectiveness −0.4, rule of law −0.77, control of corruption — weak. Doing Business ranking improved from 152nd to 64th place between 2012 and 2020 — an undeniable improvement. But the IMF's 2019 Public Investment Management Assessment found that 12 out of 15 institutions were inefficient, with an efficiency gap of 32%.

The one bright exception is digitalisation. The Diia platform, built for roughly 1.8 billion hryvnias, generated an economic effect of 184 billion — a hundred-to-one return. Twenty-two million users, 130+ services, 5.3 billion hryvnias in annual anti-corruption savings. Diia.City attracted 3,000+ IT companies paying 55 billion hryvnias in taxes. It is a rare case of modest investment yielding disproportionate returns — and simultaneously a contrast that throws the inefficiency of the rest of the system into sharp relief.

The Black Hole Rankings: A Verdict

A comparative analysis allows the budget categories to be ranked by return per unit of expenditure. First place: the Pension Fund — 11% of GDP in outlays against pensions five to ten times lower than the EU average, a structural deficit of 240–300 billion a year, a demographic catastrophe in progress, and systemic corruption in the disability certification system. Second: road infrastructure — over 400 billion hryvnias between 2014 and 2021, 95% of roads still in disrepair, the per-kilometre cost doubling in three years, documented corruption at every level. Third: healthcare — 7–8% of GDP against a life expectancy five years below Poland and 46% of costs borne by patients out of pocket. Fourth: education — 5.9% of GDP (more than Poland) producing PISA scores closer to Romania. Fifth: the state apparatus — expenditure rising by 14.3 billion while headcount fell by 30%.

For context: Poland allocates smaller GDP shares to pensions, education and healthcare, yet delivers radically better outcomes across every metric — from life expectancy to PISA scores, from pension values to road quality. The gap is explained not only by the difference in absolute funding volumes (per-capita GDP in Poland is $25,000 against Ukraine's $5,000) but by structural pathologies: a shadow economy absorbing 30–45% of GDP and narrowing the tax base; corruption consuming a significant share of resources; the absence of systemic reform (Ukraine has not established a second pension pillar after 20+ years of discussion); and a war redirecting resources to defence.

The Principal Black Hole: A Finding

The pension system is not merely the largest civilian expenditure category. It is a fiscal time bomb of slow detonation. After the war, the situation will sharply deteriorate: demobilisation will reduce unified social contribution revenues from military personnel, while the growing number of veterans with disabilities will increase expenditure. By the estimate of Budget Committee head Danylo Hetmantsev, the PFU deficit could reach 300–400 billion hryvnias annually. The OECD projects that without the return of 75% of the refugee population, the per-worker pension burden will grow by 50% relative to pre-war levels.

Ukraine has fallen into a trap: it spends on pensions like a European country, and pays like the continent's poorest state. One in every four hryvnias of state budget expenditure goes toward keeping ten million people in poverty — not toward lifting them out of it. The second pension pillar (accumulation-based) has been under discussion since 2003; the 2026 budget allocates 1.1 million hryvnias for its "institutional establishment" — a sum insufficient to rent an office in Kyiv for a year.

The proposition that "wherever the most is spent, things look the worst" stands confirmed. But it is more precisely formulated as follows: the problem is not that Ukraine spends too much, but that it spends into a system structurally incapable of converting money into results. The Pension Fund is not a black hole in the classical sense, where funds simply disappear. It is a funnel through which billions drain away through the cracks of demography, corruption and reform deferred — leaving behind payments too small to live on.