Several countries have pledged to provide financial aid to Ukraine. International support ranges from multilateral institutions to bilateral assistance. However, it is unclear how this money will be distributed among Ukraine’s various affected regions. The EU is the most likely donor, but other countries have stepped in.
World Bank
Ukraine needs international aid to rebuild its economy, but it will need a quick economic recovery. The pre-war economy expanded by approximately 3 percent a year. Using the “rule of 70,” it would take 22 years to double the economy at this rate. A 7% growth rate would take only ten years. However, Ukraine will need a faster growth rate than three percent. In order to double the economy in a short time, Ukraine must implement reforms to increase its productivity.
If Ukraine wants foreign aid, friendly countries will provide it. These countries could provide assistance in the form of loans, grants, or resources. They might support increased financial aid to neighboring nations to offset refugee inflows and prevent economic contagion. Alternatively, they might seek legislation to shield Ukraine from holdout creditors. Regardless of how Ukraine decides to proceed, foreign donors should provide aid. The World Bank is a crucial partner for Ukraine’s reconstruction.
Reconstruction aid should focus on enhancing Ukraine’s productive capacity and integrating the country into the global economy. Moreover, Ukraine should be on the road to EU accession, which would provide a powerful incentive for reform. Foreign aid should be rapid and conditional, which would ensure that it is spent wisely and directed towards best practices, such as reducing corruption. Ukraine must also have a long-term horizon for its reconstruction.
EU
The EU has presented its plans for assisting Ukraine in its reconstruction efforts, presenting additional macro-financial support to Ukraine in 2022. The EU and other international partners would then coordinate and monitor the reconstruction plan. This approach would enable Ukraine to rely on EU funds for long-term reconstruction, which will pay for itself in many years. At the same time, Ukraine would be able to benefit from additional guarantees, such as debt cancellation.
As for the EU’s role in financing Ukraine’s reconstruction, the EC has said that it is willing to provide up to EUR9 billion in macro financial assistance. The funds would be disbursed in the form of concessional loans, which require EU country guarantees. The EU will also present options on how to finance Ukraine’s’solidarity trust fund’ for reconstruction once the war has ended. It will also discuss ways of making this fund conditional on Ukraine’s commitment to reforms to become an EU member.
The European Investment Bank, the lending arm of the EU, is expected to present a plan for the creation of a new trust fund for Ukraine. This fund is expected to eventually reach 100 billion euros and be made up of investments from both EU and non-EU countries. It would provide Ukraine with investment in infrastructure projects and support its EU accession goals. The EU would also provide technical assistance. The aim is to help Ukraine rebuild its infrastructure.
Russian energy revenue
How much money is required for Ukraine’s reconstruction? NPR asked two economic historians and Ukrainian economists about the Marshall Plan, which provided more than $150 billion for reconstruction efforts in the aftermath of World War II. While the Marshall Plan was not a one-to-one comparison, it was nonetheless a massive cash transfer and knowledge exchange program, with European officials traveling to the U.S. to study advanced techniques.
The Kyiv School of Economics has calculated that the war in Ukraine costs the country about $4.5 billion per week in damages to its civilian infrastructure. The total economic loss to Ukraine could reach $600 billion, with the cost of replacement likely ranging from $100 billion to $200 billion. While experts are divided over the exact costs, many see the reconstruction effort as an opportunity to modernize the country. While the cost of reconstruction is high, some experts see it as a once-in-a-lifetime opportunity for Ukraine to develop the nation’s industrial base.
As the war ends and Ukrainian civil society becomes more empowered, competition will inevitably arise within the country’s peculiar domestic politics. Meanwhile, oligarchs have long dominated Ukraine’s cities and feed on state rents. With Ukraine’s destruction, these oligarchs may have an opportunity to consolidate their position. Meanwhile, the government will not be able to handle reconstruction tasks without funding and partners.
Multi-donor trust fund
A multi-donor trust fund established by the World Bank has helped Ukraine with its reconstruction efforts. The fund has pledged more than $4 billion to Ukraine and has been backed by financing guarantees from Britain and Italy, as well as contributions from the Multi-Donor Trust Fund. Ukraine has been facing a severe shortage of funds and has a long road ahead in rebuilding its economy. The money will go towards providing basic services, healthcare, and support to internally displaced Ukrainians.
This fund supports thermal renovation projects by distributing grant funds through partner banks. It also helps establish a network of regional consultants for HOAs. These consultants work in each oblast of Ukraine, offering technical and financial assistance to improve the state of their buildings. It also supports public outreach campaigns to inform the public of the benefits of implementing energy-efficient renovation projects. And while the EU and other multi-donor donors are the main sources of funding, Ukrainian government authorities are also looking for ways to maximize the use of their limited funds.
While the United States is committed to direct budgetary assistance, the Multi-Donor Trust Fund has been set up to channel grant funds to Ukraine. As a result, Ukraine now has a large and diverse group of international donors, including the European Union, the U.S., and other countries. The United States has pledged $500 million to the MDTF. Japan will contribute $100 million to the fund in parallel bilateral financing.
Russia’s assets
Rebuilding Ukraine requires more than money. It requires a strategy to overcome the crisis. The West needs to deploy a strategy of hope and a counter to Russia’s strategy of despair. The only way to do that is with an epic joint effort. But, returning Russia’s assets to Putin may not be possible. Europe’s taxpayers may not support this effort. This argument should not be dismissed lightly.
There are several options to obtain money from Russia. One of the most straightforward options is freezing the central bank’s assets. However, because more than half of Russia’s reserves are in the West, the idea is problematic. The funds in a central bank are technically not frozen, so a Western government has to take an additional step to freeze their assets. In Afghanistan, America frozen its central bank reserves after the Taliban took over the capital Kabul.
Another option would be establishing a Marshall Plan-style organization to handle Ukraine’s reconstruction. The Marshall Plan authors advocated establishing a joint agency to coordinate aid from EU member states, international financial institutions, and multilateral groups. However, the RebuildUkraine Facility would likely face political interference. In addition to funding, the Marshall Plan authors recommended creating an independent agency. The RebuildUkraine Facility would coordinate the resources of all these groups.
European Union
The question of whether the EU is needed for Ukraine’s reconstruction is not a new one. The EU must step up to the historical significance of the country’s accession, and learn from past mistakes regarding enlargement. The EU should also address the issues posed by Ukraine’s reconstruction, as the panelists of our online event co-organized with Review of Democracy pointed out. The EU must show that it is committed to supporting Ukraine’s reconstruction, and not just promoting Russian interests.
The EU should help Ukraine rebuild by providing additional money, but this money should be conditioned on reforms in the country. The reconstruction plan should include the modernisation of the country’s institutions, and it should also be linked to the EU’s plans for joining the EU. Such a plan will have to be backed by the European Parliament. And the EU should provide the necessary support to the Ukrainian people. The EU has a responsibility to help the country rebuild and it is in its interests to do so.
The collapse of exports and taxes has wiped out most of the Ukrainian economy, and the war has resulted in massive theft of assets and export goods. The International Monetary Fund has estimated that Ukraine will need EUR14.3 billion or $15 billion in short-term financial assistance to overcome these challenges. The EU will be ready to play a key role in this process. If the Ukrainian government rejects this proposal, the EU should also be open to providing additional money, such as low-interest loans with long-term repayment periods.
