Social expenditures: what and why the state finances in 2023

In 2023, the government actively reformulated social policy, focusing on assistance to the most vulnerable groups (veterans, persons with disabilities, and IDPs), including the development of specialized social services. Moreover, there has been a shift in the philosophy of social policy from providing assistance to individuals in dire situations to comprehensive support aimed at helping them reintegrate into social life and the job market. However, what about the funding?

What changes occurred in social protection in the second half of 2023? How are funds allocated for social welfare? How will expenditures on social protection change in 2024? How many internally displaced persons were there in 2023, and what proportion of them received the IDP subsistence allowance? Did the Pension Fund of Ukraine have enough funds in 2023 to fulfill its obligations? You can find answers to these and other questions in our review of social expenditures.

Key changes in social protection of the population in the second half of 2023

Development of social services

The Ministry of Social Policy of Ukraine directed its efforts towards developing new social services for the most vulnerable segments of the population.

In July, an experimental project commenced to provide social services in healthcare facilities, including shelters, supported living accommodations, stationary care, and social adaptation. According to Resolution No. 248, care and adaptation services are provided to elderly individuals and persons with disabilities among internally displaced persons (IDPs) who have relocated from hostilities zones or temporarily occupied territories or have housing destroyed due to military actions. Implementing this project aims to provide not only shelter but also individualized social support tailored to the needs of the most vulnerable citizens. The state budget for 2023 had UAH 45.1 million allocated for its implementation, of which 64.1% or UAH 28.9 million was actually spent. This expenditure execution is due to the fact that the project implementation started only after June 30, 2023 (not in March with the adoption of the Resolution), when changes were made to the procedure for using funds for project implementation.

From May to October 2023, a pilot project to implement the “Family Assistant” social service was carried out. As of September 2023, this service was provided by over 100 social services and non-governmental organizations operating in communities from 23 regions. This service is aimed at families in difficult life circumstances: social workers assist parents in restoring their ability to effective parenting, including assistance with job searching and psychological support. A total of 264 families have already benefited from this service. The project was based on international experience and was implemented by the Ministry of Social Policy of Ukraine in cooperation with the SURGe project with the support of the Government of Canada.

In October, the government launched an experimental project for comprehensive psychosocial services to build resilience among the population (Resolution No. 1049). The project aims to reduce stress and anxiety among Ukrainians, provide skills for initial psychological assistance, and develop resilience. Special attention is given to families of service members and veterans, as well as supporting parents, including developing parenting skills and child care. The service includes psychological diagnostics, counseling, support after trauma and stress disorders, and training in stress management methods. In 2023, the state budget allocated UAH 6.4 million to implement this program. However, the funds remained unused because the services were not actually provided. As of January 1, 2024, 34 urban and rural territorial communities with populations ranging from 5,000 to 388,000 individuals had joined the project. The Ministry of Social Policy of Ukraine also plans to invite approximately 120 more communities to participate in 2024. The implementation of the experimental resilience-building project is scheduled until December 31, 2024. Afterward, it will be introduced in other communities across Ukraine.

As of December 1, social support for service members and their families in military units commenced (Resolution No. 1050). The service includes psychosocial support for military personnel in civilian matters, such as consultations on document processing, payments and benefits, legal assistance, family support, and addiction prevention. The pilot project was launched based on five battalions in four regions (Poltava, Kyiv, Ivano-Frankivsk, and Volyn). In 2024, the program is planned to involve 35 military units (the list of military units is managed by the Ministry of Defense of Ukraine). The Social Protection Fund for Persons with Disabilities will be responsible for purchasing these services: according to the rules, services for social support of service members and their families can be provided by legal entities, individual entrepreneurs, as well as public and charitable organizations registered in the Register of Social Service Providers, having the necessary number of qualified staff, and ensuring their professional training. In 2023, UAH 2.7 million was allocated to implement this service, but since the project started late in the year, only 22.7% was actually spent.

Streamlining the process of obtaining assistive devices for people with disabilities

In December 2023, the government improved the mechanism for obtaining and prescribing assistive rehabilitation devices. Now, the decision on the need for prosthetics can be made by a multidisciplinary rehabilitation team in a healthcare facility, simplifying the procedure and making it more adapted to the individual’s specific needs (previously, decisions on the need for prosthetics could only be obtained from medical-social expert commissions, medical-consultative commissions, and military-medical commissions). The maximum cost of prosthetics for children covered by the state now equals that for adults, allowing prosthetic enterprises to provide them with necessary components at market prices. Repairs within the warranty period and repairs resulting from combat actions or Russia’s aggression will be financed from the state budget. Prosthetics purchased abroad can now be serviced in Ukraine using state funds. Additionally, the procedure for prescribing electric wheelchairs was simplified, and the maximum cost of prosthetics was increased. In 2023, the Ministry of Social Policy of Ukraine provided over 15,000 individuals with technical and other rehabilitation aids (prostheses, orthoses, mobility aids, special aids for self-care and care, etc.) for UAH 3 billion. In 2024, it is planned to allocate UAH 4.3 billion for this service.

Assistance to internally displaced persons

Due to the continuation of active hostilities, regular rocket attacks, and consequential damage and destruction of residential and infrastructure objects, the number of registered IDPs increased by 55.3 thousand individuals in 2023, reaching a total of 4.91 million by the end of the year. However, some registered IDPs returned to their previous registration places while remaining in IDP status. According to IOM estimates, as of December 2023, the actual number of IDPs in Ukraine was 3.7 million, with 39% having moved multiple times. People are seeking better employment opportunities and safer living conditions. In the event of a change in residence, an IDP must inform the social protection authorities within ten days of arriving at the new place of residence. An individual can independently apply to cancel their IDP certificate. Additionally, social protection departments may cancel the certificate if the person has returned to their permanent residence, permanently moved abroad, committed a criminal offense, or provided false information.

In 2023, 2.54 million registered IDPs, or 51.7%, received the IDP subsistence allowance (UAH 2,000 for adults, UAH 3,000 for children and persons with disabilities). In 2022, 39.8% of IDPs received such aid (see Figure 2). Due to the previous conditions for receiving the IDP subsistence allowance, the number of recipients of this assistance increased by 602,800 individuals in 2023. Previously, the IDP subsistence allowance was provided upon registration as an IDP regardless of employment status if the individual had relocated from specified territories, according to the list adopted by the Ministry of Reintegration of the Temporarily Occupied Territories of Ukraine.

In the second half of 2023, new rules for receiving the IDP subsistence allowance were introduced. Starting from August 1, 2023, the IDP subsistence allowance from hostilities zones was automatically extended for six months. The assistance was not provided to those who had been abroad for more than 30 days, were serving sentences, or had returned to territories without a defined end date for hostilities.

Starting from September 1, 2023, the IDP subsistence allowance was suspended following verification if it was found that IDPs had purchased a vehicle less than five years old, bought real estate worth more than UAH 100,000, were on state support, had a deposit account balance exceeding UAH 100,000, owned residential premises in areas with completed hostilities, and had purchased foreign currency and bank metals worth more than UAH 100,000. Additionally, the process of assistance allocation for those returning from abroad, where IDPs had traveled after registering in Ukraine, was simplified, and measures were introduced to stimulate the employment of able-bodied IDPs. Now, employable IDPs must either work or be registered as unemployed.

Changes in the regulation of the allocation of the IDP subsistence allowance aim to organize and optimize the use of state resources so that support is provided only to those citizens who need it most. The results of the verification conducted before August 1, 2023, showed that 109,000 individuals receiving the IDP subsistence allowance had been living abroad for an extended period. Additionally, the assistance continued to be made to 10,000 individuals who had passed away, and another 10,000 received the assistance in multiple communities simultaneously.

In 2024, the IDP subsistence allowance was automatically extended until March 1, 2024, without the need for additional applications. Starting from March 1, automatic prolongation of the assistance for six months occurred for the following categories:

• Pensioners with an income up to UAH 9,444 (four subsistence minimums (SM) for individuals who have lost their ability to work),
• Individuals with disabilities of groups I or II,
• Children with disabilities under 18 years old,
• Seriously ill children,
• Orphans and children deprived of parental care up to 23 years old,
• Foster parents and adoptive parents.

For other categories of IDPs, the assistance is allocated for six months based on an application, which can be submitted until the end of April 2024 if the family income does not exceed UAH 9,444 per person. In this case, the IDP subsistence allowance is provided to:

• Families with children under 14 years old who cannot attend educational institutions or whose education is conducted in a hybrid format,
• Families where one member cares for a person with disabilities of group I, a person with disabilities of groups I or II with a mental disorder, a person over 80 years old, or a seriously ill child,
• Unaccompanied minors with a legal guardian,
• Pregnant women after the 30th week of pregnancy (27th week for women affected by the consequences of the Chornobyl accident).

The assistance is continued for employable family members through employment and registration as unemployed at the employment center. In this case, if after the reassignment of assistance, an able-bodied unemployed family member fails to find employment and does not actively contribute to their job placement, the assistance may be terminated. The only exception is when one of the non-disabled family members is responsible for caring for a person with disabilities.

The actual expenditure on the IDP subsistence allowance for 2023 amounted to UAH 73.2 billion. UAH 53.5 billion was initially allocated for this assistance, as the government expected a decrease in the number of IDPs receiving social support. The budget was drafted considering the reduced intensity of hostilities in the latter half of 2023. However, this expectation did not materialize, leading to the implementation of additional mechanisms to limit the duration of the assistance. Furthermore, due to the continuation of hostilities and the increase in the number of registered IDPs in October 2023, the planned budget for this assistance had to be increased to UAH 74.2 billion, representing a 38.7% increase. In 2024, the planned expenditure on the IDP subsistence allowance was reduced by 22.4% to UAH 57.6 billion due to changes in the regulation of this assistance.

At the end of 2023, the government revised the compensation program for employers hiring IDPs. One of the key changes was the extension of the compensation period from two to three months for regular IDPs and up to six months for IDPs with disabilities. Now, the compensation amounts are tied to the minimum wage, whereas previously, they were set at a fixed rate of UAH 6,700 per month without any linkage to specific indicators. As of January 1, 2024, the compensation amounted to UAH 7,100, and as of April 1, 2024, it stands at UAH 8,000. In 2023, employers received a total of UAH 181 million in compensation for employing over 14,000 IDPs.

State budget social welfare expenditures in 2023

Over the course of two years of full-scale invasion, expenditures on social protection and social welfare (hereinafter – social welfare) increased by 38.3% (UAH 130 billion) according to functional classification. In 2023, UAH 469.3 billion was allocated for social welfare, accounting for 11.7% of the total state budget expenditures. This is 10.2% or UAH 43.3 billion more compared to 2022 (see Figure 3). Specifically, spending on pensioner social protection increased by UAH 40.7 billion to UAH 273.6 billion due to pension indexation in 2023.

In 2023, according to the program classification, the actual expenditures for the budget programs of the Ministry of Social Policy of Ukraine amounted to  UAH 451.6 billion, or 98% of the planned amount for the year (see Table 1).

The largest budget program of the Ministry of Social Policy of Ukraine traditionally involves transfers from the state budget to the Pension Fund of Ukraine (PFU) to finance pension programs and cover the Fund’s deficit. In 2023, this amount accounted for 35.2% of the Pension Fund’s budget revenues. Second in terms of volume are the expenditures of the Ministry of Social Policy of Ukraine on social protection of citizens in difficult life circumstances (including IDPs), support for low-income families (including payments for housing subsidies and benefits for housing and communal services), social protection of children and families, and social protection of persons with disabilities (see Table 1). 

The lower actual expenditures on social protection compared to planned ones are explained by a reduction in the number of people received assistance. Specifically, in 2023, the number of recipients of housing subsidies decreased due to the growth of citizens’ incomes and pension indexation. The increase in electricity tariffs in the second half of 2023 had a minimal impact on the volume of subsidies (the “Support for low-income families” budget program was funded by UAH 6 billion less than planned). Additionally, the expected increase in the number of beneficiaries did not occur, particularly among single mothers, children in large families, and assistance for childbirth, adoption, and guardianship over children (underperformance of the “Social Protection of Children and Families” budget program by UAH 2.4 billion).

Expected state budget expenditures on social security in 2024

The planned expenditures of the state budget on social protection and social security in 2024 are 1.6% higher than in 2023, amounting to UAH 476.8 billion. Expenditures on social protection for disability cases and support for war veterans and workers, families, children, and youth will increase. Meanwhile, state budget expenditures on social security for pensioners will decrease by UAH 1.8 billion, totaling UAH 271.9 billion. This is due to the expected increase in the PFU’s own revenues through growth in revenues from the Social Security Contributions (SSC) and a reduction in pension indexation to 7.96% due to lower-than-expected inflation in 2023 (5.1%).

In 2024, expenditures for the largest budget programs of the Ministry of Social Policy of Ukraine will increase by 3% to UAH 465 billion. Total expenditures on support for low-income families and subsidies for payment of utility services will increase by UAH 17.8 billion. Specifically, the total expenditures on payments to low-income families will increase by 77.2% to UAH 20.2 billion, and subsidies will increase by 41% to UAH 49.9 billion. Expenditures on social protection for children and families will increase by UAH 3.4 billion, mainly due to the growth in expenditures to support orphans and children deprived of parental care. Social protection expenditure for persons with disabilities will double (by UAH 3.3 billion to UAH 6.7 billion) due to increased expenditures on providing auxiliary rehabilitation means and prosthetics and compensation for rehabilitation services for children with disabilities. Meanwhile, expenditures on social protection for citizens in difficult life circumstances will decrease by UAH 14 billion, which is associated with changes in the rules for granting subsistence payments for IDPs.

Revenues from the Social Security Contributions (SSC)

In 2023, the revenues from the SSC amounted to UAH 478.1 billion, which is UAH 52.8 billion or 12.4% more than in 2022 (see Figure 5). This increase is accounted for by the SSC from service members, an increase in the minimum wage (from October 1, 2022, it was raised from UAH 6,500 to UAH 6,700), and the economy’s gradual recovery.

The revenues from the SSC is the main source of income for the PFU and the Compulsory State Social Insurance Fund for Unemployment. In 2023, the SSC funded the PFU at 87.6% and the Unemployment Fund at 100%. 

The State of the Pension Fund of Ukraine and Pension Sizes in 2023

In 2023, the total revenues of the PFU increased by 25.3% or UAH 156.9 billion compared to 2022, reaching UAH 777.3 billion (see Figure 7). This increase was due to the higher proportion of revenues from the SSC allocated to the PFU, as it began to perform functions related to social insurance payments (starting from January 1, 2023). Revenues also increased because the PFU is responsible for payments for housing subsidies and benefits for housing and communal services.

The expenditures of the PFU  increased by UAH 156.2 billion, or 26.5%, to UAH 746.3 billion (see Figure 8). 

Due to the increase in its own revenues, the Pension Fund of Ukraine ended the year 2023 with a surplus of UAH 31 billion, which was used to partially repay the loan received from the unified State Treasury account from 2007 to 2021.

In 2023, the number of pensioners decreased by 1.9%, while the average pension increased by 14.2%. The number of pensioners decreased by 201 thousand to 10.5 million individuals. The average pension increased by UAH 762.66, reaching UAH 5,385.25 as of January 1, 2024. The significant increase in the average pension was mainly due to the indexing conducted in 2023 with a coefficient of 1.197. However, not all pensions increased by 19.7% because limitations were imposed on increasing pensions from UAH 100 to UAH 1,500, and the maximum pension size was not to exceed ten times the subsistence minimum for persons who lost their ability to work (UAH 20,930 in 2023). Starting from March 1, 2023, indexing was received by 10.5 million pensioners, including:

• 9.0 million old-age pensions,
• 0.1 million Chernobyl disaster victims,
• 0.5 million for years of service,
• 0.9 million pensioners who were awarded pensions before December 31, 2022, and did not have them indexed from March 1, 2023, received an additional payment of UAH 100.

From April 1, pensions were recalculated for 654.9 thousand working pensioners, and from July 1, for 19.4 thousand pensioners employed in civil service.

As of January 1, 2024, approximately 30% of pensioners received pensions below UAH 3,000, while those receiving over UAH 10,000 were almost three times fewer. In March 2024, an indexation of about 8% was conducted. The lower indexing coefficient was primarily associated with a significant slowdown in inflation in 2023. 

Summary and risks of further financing of social expenditures

Overall Summary of 2023

Due to the full-scale war, the country’s population structure has changed, particularly with an increase in the number of veterans, people with disabilities, and IDPs who require specialized social services. In order to ensure a more rational use of taxpayers’ funds, the government has been developing social services tailored to meet the specific needs of citizens. This is aimed at reducing the reliance of targeted groups on long-term social assistance and supporting their reintegration into quality social life and labor market recovery. To achieve these goals, the government utilized tools such as tender announcements and open competitions, allowing private providers of social services listed in the Registry to deliver such services. In 2024, the state budget allocates UAH 1.1 billion for the new “Development of the Social Services System” program.

The Ministry of Social Policy systematically expanded the range of social services for the most vulnerable population groups. In 2023, the Ministry introduced social support for service members and their families, services for resilience-building in the population, as well as care and adaptation services for older adults and people with disabilities. Additionally, a new program supporting families in difficult life circumstances was implemented to preserve families and prevent the institutionalization of children. Furthermore, services can now be procured under open rules from NGOs, charitable foundations, or legal entities (including individual entrepreneurs).

Due to the increasing need for social protection, the government increased social welfare expenditures, supporting protection guarantees for citizens affected by the war. The funding for these programs was provided through international financial assistance. 

Risks for the future

If international financial assistance is postponed, there can be delays in disbursing social assistance and implementing social programs. If international financial support ceases, the government will turn to domestic reserves for funding and may cut some expenditures.

As a result of new threats to the lives and well-being of Ukraine’s population, the number of citizens in need of state support may increase, leading to additional expenditures from the state budget. Further destabilization of the economy and infrastructure, coupled with insufficient numbers of social workers during the war, limits access to necessary resources for providing social services, which may result in their shortage and/or decreased quality. 

In the future, the demographic situation may impact the sustainability of the solidarity-based pension system. According to estimates from the UNHCR, the number of forced migrants from Ukraine worldwide stands at 6.5 million people (primarily women and children), representing 16% of Ukraine’s population before the full-scale invasion. Furthermore, the continuation of the war and its aftermath do not stimulate childbirth rates in the country. Currently, we have approximately equal numbers of insured persons (employees and individual entrepreneurs) and pensioners – 10.8 million and 10.5 million, respectively. The situation where one worker supports one pensioner is unsustainable.