The True Cost of the Shadow Economy for Ukraine's Budget

Вокс Україна

Ukraine's shadow economy is one of the key factors determining not only the volume of budget revenues, but also the quality of economic policy, the competitive environment, and the prospects for post-war recovery. According to available estimates (EY Shadow Economy Exposed, 2025; Ministry of Economy), between 20% and 40% of GDP lies outside official accounting, which means systemic losses for the budget in the range of UAH 353.5–568 billion annually, limits on investment attractiveness, and the creation of an uneven playing field for business. Which sectors have the largest "shadow," and what can be done to reduce the scale of the shadow economy?

According to the Ministry of Economy's definition, the shadow economy is economic activity by a business entity that is not registered in accordance with established procedure, characterized by minimizing costs for the production of goods, performance of works, and provision of services, evasion of taxes, fees (mandatory payments), statistical surveys, and submission of statistical reporting, resulting in violations of legally established norms (minimum wage level, working hours, labor conditions and safety, etc.).

By definition, the scale of the shadow economy is difficult to measure, which is why estimates can vary significantly. For example, Ernst & Young estimated Ukraine's shadow economy level in 2023 at 19.3% of GDP, World Economics put it at 39.4%, and the OECD gives a range of 25-45%. For state policy, this means the absence of a single benchmark and the need to work with a wide range of scenarios.