CASE Ukraine took part in the presentation and discussion of the OECD Economic Survey on Ukraine

The OECD invited leading Ukrainian economists to discuss the review’s content. CASE Ukraine’s Executive Director Dmytro Boyarchuk was particularly present.

Key points from the speech:

We often discuss the resilience of the Ukrainian economy, but this resilience is underpinned by substantial external funding. Securing that funding—or finding a sustainable way to replace it—is one of the biggest challenges we face. Ukraine needs nearly $40 billion annually to stay afloat.

There are, of course, many “ifs”: if the war ends, if we gain access to frozen Russian assets. But so far, there has been no movement on using those frozen reserves, and the war shows no signs of ending soon.

So, how should we address the $40 billion we need each year and will likely continue to need for many years to come?

The answer is not straightforward. Before proposing a solution, I want to highlight how the Ukrainian economy operates.

In reality, our economy functions in two parallel segments. One is visible to statisticians and fiscal authorities—this is the formal sector. Around 90% of officially operated businesses adhere strictly to the law and meet tax compliance obligations. These are the very actors who bear the brunt of all tax mobilization efforts initiated by fiscal authorities.

The other segment operates primarily outside of the official system. It is visible to the authorities, but for various reasons, law enforcement and fiscal bodies often look the other way. These businesses are not reflected in official statistics or held accountable to the same standards.

Businesses in the formal sector operate in a highly oppressive environment. They face a presumption of guilt from fiscal authorities, pay all taxes, and remain vulnerable to arbitrary actions by law enforcement or tax officials that can block their operations without justification.

Meanwhile, those in the shadow economy enjoy a far more comfortable position. They are effectively shielded from oppressive compliance measures, and their interactions with authorities are informally arranged, though outside the law.

In other words, it is currently easier, cheaper, and more rewarding to operate informally than to function as a compliant taxpayer under an oppressive and often unjust system.

So, back to the question: how do we replace the $40 billion in financial support that Ukraine needs each year?

I would argue that the solution lies in closing the gap between the formal and informal segments of the economy.

In this context, I was very encouraged to hear the discussion around tax compliance costs. The conventional approach focuses on stricter enforcement, but in a country with a weak rule of law, tighter compliance measures often backfire—they either further burden those who already follow the rules or simply create new opportunities for corruption. They rarely reach the informal economy.

Consider the recent re-criminalization of smuggling, a requirement under EU accession. One year later, only three minor cases have been reported, and no large-scale or systemic smuggling operations have been uncovered.

To truly address the problem, we need to stimulate economic growth. That means reducing the cost of tax compliance for honest businesses and improving the capacity of law enforcement to deal with those operating in the shadows.