One should understand right now, how to start rebuilding a war-torn country and where to get money: better late than never.
For over one year, Ukraine has faced a large-scale destruction due to russian military aggression. Since outbreak of the war, the country’s economy has shrunk by almost a third. Today own funds are enough mainly to finance military expenses, while social payments are largely provided by financial remittances from international partners.
Despite this, it’s not so early to form the clearest possible vision and, with regards thereto, a strong and predictable financial basis for the future post-war reconstruction of Ukraine.
Ukrainian government officials, business entities, scientists and public sector, jointly with our international partners, are actively working on developing a vision of priorities for future reconstruction and forming the appropriate infrastructure.
See LIGA.net materials: how the Ukraine’s reconstruction infrastructure will look like and what sums are involved.
War-time priorities
Rostyslav Shurma, Deputy Head of the President’s Office and manager of economic sector of the President’s Administration, in his interview for LIGA.net recently spoke about the priorities of the Ukrainian government in post-war reconstruction of the country.
He sees the following structure of the state needs: “Basic need for our state is to continue functioning. It is not just a reconstruction; it is aimed at payment of pensions and salaries. Next need is quick reconstruction, followed by large-scale reconstruction”.
Therefore, the most vital issue is survival of the state, which is not related to recovery anyway. Next stage is the so-called Fast Recovery Plan, in respect whereof there is a clear understanding what should be restored and who will be responsible for it.
Fast recovery
This stage of reconstruction is primarily related to meeting the people’s needs, namely:
• restoration of housing;
• reconstruction of critical infrastructure (i.e. power/heat/water supply, mobile communication, etc.);
• humanitarian aid (schools, hospitals, kindergartens);
• transport infrastructure (roads, bridges).
For this work, the government created a special body called the State Agency for Reconstruction and Development of Ukraine’s Infrastructure, in the form of merger between Ukravtodor and the State Agency for Infrastructure Projects.
The Agency is responsible not only for transport infrastructure restoration but also covers construction and reconstruction of residential facilities, social and public facilities, housing, energy infrastructure, protective structures, etc.
Mustafa Nayem, Head of the Agency, notes that priority will be given to projects in the most affected regions, such as Odesa, Mykolaiv, Zaporizhzhia, Kherson, Dnipro, Donetsk, Luhansk, Kharkiv, Sumy, Chernihiv, Zhytomyr and Kyiv regions.
Recently, the President signed the law on launching a compensation mechanism in favor of Ukrainians for destroyed or damaged housing. The sources of funding such reimbursement are the Recovery Fund, state and local budgets, funds from MFIs, investors, international partners, as well as reparations and confiscated russian assets.
See the link for details: who can rely on reimbursement for destroyed or damaged housing.
Internal financing sources
President Volodymyr Zelenskyy stated the need for 17 billion USD just for the Fast Recovery Plan.
People’s Deputy Danylo Hetmantsev, Secretary of the National Recovery Council, an advisory body at the President of Ukraine, reminds it in a comment for LIGA.net that it occurred in October 2022, before the large-scale destruction of power supply infrastructure, Each subsequent enemy shelling will cause increase of Ukraine’s losses due to the war.
“We update the damage assessment on a monthly basis: plus two-three-five billion dollars every month”
The state budget can offer much smaller amounts. State budget for 2023 provides 52.5 billion UAH for the Fund for the Liquidation of Consequences of the russian federation’s Aggression, i.e. slightly less than 1.4 billion USD.
In February, the government approved the procedure for using such funds. First of all, costs will be aimed at construction and repair of public buildings, housing for war victims, purchase of school buses and special vehicles for health care facilities and utility companies.
Apart to the aforesaid 52.5 billion UAH, Mr. Hetmantsev notes that the state is planning to allocate additional funds for reconstruction in various ways, e.g. 5.3 billion UAH of subventions to local budgets, 2 billion UAH from the State Fund for Regional Development, jointly with smaller amounts. But this is far from 17 billion USD.
International aid
Ukraine prefers to receive the rest from partner countries and international financial organizations. There are many financing channels.
In late January 2023, the European Union launched a donor coordination platform for recovery of Ukraine. The EU itself is ready to allocate 1 billion EUR for rapid recovery projects.
Accumulation of funds for recovery of Ukraine also takes place through the World Bank fund and the international special fund for power supply recovery.
Certain countries have also created their own funds. For instance, Denmark allocated 1 billion USD for Ukraine’s needs, including 0.4 billion USD for post-war reconstruction – not directly, but through financing by Danish companies.
International aid for Ukraine also comes through the official United24 fundraising platform.
Ukraine also relies on one more funding source: reparations from the russian federation and confiscated russian assets. But it is a long-term prospect: it makes no sense to rely thereon at least this year.
The current situation and further priorities
As declared by the Ministry of Finance of Ukraine for LIGA.net, in 2022 the European Investment Bank (EIB) allocated 1.05 billion EUR as part of launching joint investment projects aimed at financing measures to prepare housing and communal facilities for the heating season.
In addition, costs were allocated to restoring and updating road facilities damaged by hostilities, in particular, artificial structures and railway infrastructure, power/heat/eater supply, residential and communal infrastructure facilities, securing energy efficiency and energy saving.
In September and October 2022, EIB funds in the amount of 1 billion EUR were transferred to a special fund of the state budget. However, 50 million EUR from the EIB loan funds were directed to the state enterprise Ukrenergo for financing auxiliary services, balancing production and consumption of power energy.
In the framework of financing the above facilities, 400 million EUR were transferred to the State Highway Agency of Ukraine in order to take measures aimed at support of functioning road management and transport infrastructure under martial law.
As reported by the Ministry of Finance, a decision is being drafted upon allocating 600 million EUR in 2023 for the purposes of design, restoration, construction, modernization, arrangement and repair of construction facilities. It will cover mainly public facilities, social sphere objects, cultural heritage and household services.
In priority there are engineering and transport (public highways of state importance), railway, power supply infrastructure, checkpoints across the state border for road traffic, other facilities having an impact on people’s life, as well as infrastructure of air, sea and river transport.
In late 2022, Prime Minister Denys Shmyhal reported that aid amount declared by partners just in power supply sector of Ukraine reached ca. 1.5 billion USD.
Who will receive funds?
Delegates of regional and Kyiv city state administrations may submit Applications for receiving funds from the Recovery Fund to the Ministry of Infrastructure, the Ministry of Energy, the Ministry of Health and the Ministry of Education and Science. There will be no single manager of fund recovery in Ukraine.
There is an institutional framework headed by the Deputy Prime Minister (currently Oleksandr Kubrakov), a ministry subordinate thereto and a special reconstruction agency, as Danylo Hetmantsev noted in a comment to LIGA.net.
He added, “There is no single manager, since there are many channels for obtaining funding. As for part of the international funding through the budget, the ministry responsible for certain reconstruction projects is directly defined in the agreements”.
Martyna Bohuslavets, CEO of the Institute of Legislative Ideas, states that a problem may be the fact that only heads of regions can apply for funds from the Reconstruction Fund, while mayors of cities and communities become dependent thereon.
Mrs. Bohuslavets believes that, despite creation of special working groups that will study applications for receiving funds, the final decision will be made by the ministries and the government itself. Therefore, the process of cost distribution will be centralized and will function in manual mode, i.e. non-transparent and non-public.
Large-scale reconstruction
As for financing the stage of large-scale post-war reconstruction, there are even less specifications.
According to the State Recovery Plan presented by the Ukrainian government delegation in July 2022 in Lugano, Switzerland, the Marshall Plan for post-war Ukraine is designed for 10 years and is estimated at 750 billion USD.
Rostyslav Shurma clarified in an interview with LIGA.net that there may be various sources of obtaining such funds: for instance, international government funds, reparations, confiscated russian assets and concession capital. But the main potential source is private capital.
Deputy Head of the President’s Office highlights that the success of large-scale recovery will depend on the private capital volume, because private capital makes up 80% from the above 750 billion USD.
Ukrainian government officials understand that attracting funds from private investors is impossible without structural reforms, primarily in terms of the rule of law and anti-corruption gains.
“We are currently working with our international partners, i.e. BlackRock and J.P. Morgan, upon formation of development bank or development fund, which will be the first locomotive of investments in the first dozens of projects and which will help open Ukraine to the whole global business”.
In addition, the Ministry of Economy has created the Advantage Ukraine platform aimed to communicate with potential investors. According to the Ministry, Ukraine has already received over 500 investment requests.
In the framework of stimulating international investments, the Ministry of Economy is actively trying to introduce in Ukraine, in particular, military business risk insurance. Victory on this front will be a keystone on the way to a significant increase in the flow of foreign private investments into the Ukrainian economy development: we already have success just now.