Ukraine prepares for biggest reconstruction since World War II

A year on from the start of a full-scale Russian invasion, Ukraine’s economy and infrastructure are in ruins, with the government and its allies planning the biggest reconstruction effort since. from World War II.

The World Bank estimates that Ukraine’s GDP has fallen by 35% by 2022 and Expected October that the share of the population with incomes below the national poverty line will grow to nearly 60% by the end of last year — up from 18% in 2021.

To date, the World Bank has raised $13 billion in emergency funding for Ukraine since the war began, including grants, guarantees, and joint parallel funding from the United States, UK, Europe and Japan.

The International Monetary Fund estimates that the Ukrainian economy has shrunk by 30%, a contraction less severe than previously predicted. According to the National Bank of Ukraine, inflation has also begun to decelerate, but ends 2022 at 26.6 percent year-on-year.

IMF Managing Director Kristalina Georgieva visited Ukraine this week, meeting with President Volodymyr Zelenskyy and NBU Governor Andriy Pyshnyy, among others.

In a statement on Tuesday, Georgieva said she sees “an economy that is working, despite enormous challenges,” praising the government’s vision of moving from recovery to a “transitional period.” reconstruction and EU accession.”

“Stores are open, services are provided and people go to work. This is a remarkable testament to the spirit of the Ukrainian people,” Georgieva said, noting that government agencies, organizations The economy and banking system are operating normally.

“Despite the attacks on critical infrastructure, the economy is adjusting and a gradual economic recovery is expected this year,” she added.

Georgieva reiterated the IMF’s commitment to support Ukraine, and the Washington-based organization provided $2.7 billion in emergency loans over the past year. However, Kiev is also working with Ukraine under an economic policy monitoring program, a precursor to the establishment of a formal IMF lending program, as Kiev seeks a multi-year support package worth $15 billion. dollars.

“The international community will continue to have an important role to play in supporting Ukraine, including helping to address major financial needs in 2023 and beyond,” concludes Georgieva.

“The war in Ukraine has far-reaching consequences for the local, regional and global economy. Only when we work together as a global community can we build a better future.”

Major infrastructure rebuild

At a G-20 meeting on Thursday, US Treasury Secretary Janet Yellen urged the IMF to “move forward” to a fully funded lending program, with Washington poised to provide economic assistance in the amount of $10 billion in the coming weeks.

According to Germany’s Kiel Institute for the World Economy, the United States provided a total of $76.8 billion in bilateral military, economic, and humanitarian aid to Ukraine between January 24, 2022, and January 24, 2022. January 15, 2023.

This includes $46.6 billion in military funding and loans, arms support and security, far ahead of the rest of the world. The UK is the second largest military contributor with $5.1 billion, followed by the European Union with $3.3 billion.

As the conflict enters its second year and shows no sign of abating, with Russia increasingly attacking critical infrastructure and power shortages continuing, Ukraine’s economy is expected to shrink. back this year, albeit in a single-digit low.

ONE Recent estimates from the Kiev School of Economics put the total damage to Ukrainian infrastructure at $138 billion, while Zelenskyy estimated that rebuilding the country could end up costing more than 1 trillion dollars.

“Since the beginning of Russia’s war with Ukraine, at least 64 large and medium-sized enterprises, 84.3 thousand units of agricultural machinery, 44 social centers, nearly 3 thousand shops, 593 pharmacies, close to 195 thousand private cars, 14.4 thousand public transport vehicles, 330 hospitals, 595 state and local government administrative buildings were damaged, destroyed or confiscated,” KSE reports. emphasize.

Meanwhile, Ukraine’s budget deficit has grown to a record $38 billion and is expected to continue to soar, despite likely strong outside support from Western governments. and the IMF, according to Razan Nasser, sovereign emerging markets analyst at T. Rowe Price.

“This will help close the fiscal gap, which in turn will help reduce reliance on monetary finance this year,” Nasser said.

During the January policy meeting, NBU officials discussed several measures to avoid a return to monetary financing of the budget deficit.

Foreign creditors in August agreed to defer government debt for two years, acknowledging the immense pressure the war has placed on the country’s public finances.

“This will probably be the first step of the restructuring process, with the possibility of deep debt cuts. It is difficult to predict the size of this debt reduction because it depends on the state of the Ukrainian economy at the moment. restructuring agreement,” Nasser said.

He added that a “political decision” was needed on how much private creditors should contribute to reconstruction costs given the enormous damage done to infrastructure to date.

“When this war is finally over, the scale of the reconstruction and recovery effort will likely eclipse anything Europe has seen since World War II,” he said.

This sentiment was echoed on Wednesday by Deputy Prime Minister Yulia Svyrydenko, who told Politico in an interview in Brussels that reconstruction will begin this year, although there is no immediate end to the immediate conflict.

“This will be the biggest reconstruction [since] World War II,” she said. “We need to start now.”

Daniela Schwarzer, executive director of Open Society, told CNBC on Thursday that despite starting to rebuild while the war is still ongoing, Russia continues to target civilian infrastructure.

“Ukrainians clearly think that reconstruction has to start in some parts of the country while the war is still going on, because for the country the destruction of the infrastructure – which actually happens every day. day – needs to be dealt with otherwise people might not be able to live, the economy can’t recover, and so there’s a huge mandate,” she said.

“Over the next few months we will see international financial institutions, including European institutions such as the International Bank for Reconstruction and the European Investment Bank alongside governments and the EU, plus The United States, will do, but the next important question is how is it possible that private investments will eventually be brought back to Ukraine, because the government alone cannot rebuild the country.”