Ukraine’s grim economic strain from war confronts world governments

WASHINGTON – The world’s top financial officials gathered in Washington last week faced a bleak picture of the growing economic costs of Russia’s war in Ukraine and the challenges they face in helping pay Ukraine’s short- and long-term bills.

Ukraine needs about $ 5 billion a month in budget support for up to five months and about $ 600 billion for a broader reconstruction effort, Ukrainian Prime Minister Denys Shmyhal said on Thursday at a forum hosted by the World Bank during spring meetings of the International Monetary Fund.

The two international financial institutions and several individual governments have begun to pledge contributions, but in interviews and public comments, officials acknowledged that much work remains to be done to find the necessary funds.

Odile Renaud-Basso of the EBRD said Ukrainian aid comparable to the Marshall Plan after World War II is being considered.


Photo:

Hollie Adams / Bloomberg News

“You will now see a great mobilization of the international community,” Odile Renaud-Basso, President of the European Bank for Reconstruction and Development, said in an interview on Friday. “Everyone thinks of something like a Marshall Plan for Ukraine, like what happened after World War II,” she said, referring to the US-led multinational reconstruction program launched in 1948, which helped revive Europe’s economy through official assistance and private investment.

The task comes at a challenging time for the world economy. Nations including the United States are struggling with their own problems, including rising inflation and declining growth. Many developing countries – facing higher food and fuel prices and rising debt burdens amid rising interest rates and a continuing pandemic – say they need help from rich governments and international financial institutions such as the IMF and the World Bank.

“The big problem that everyone is struggling with is … how do you make politics in this world when you have a crisis after a crisis and you have not recovered from the first crisis yet,” Gita Gopinath, First Deputy CEO at the IMF, said in an interview.

Non-military support for Ukraine and debt stress in developing countries were top topics for finance ministers and central bankers attending the meetings.

Ukrainian President Volodymyr Zelensky spoke about Russian military targets in a video appearance at the World Bank roundtable this week.


Photo:

Grant Ellis / World Bank Group / Shutterstock

Ukraine’s financial needs fall, according to officials from Kiev and the multilateral groups, into two main categories: short-term and long-term.

The country needs about $ 5 billion every month to cover significant government services over the next two to three months, according to IMF Executive Director Kristalina Georgieva, citing a budget deficit due to a decline in revenue and increased costs such as care of wounded soldiers and displaced citizens.

Ukrainian President Volodymyr Zelensky told delegates in his video appearance at the World Bank’s Round Table on Ukraine’s assistance on Thursday that “the Russian military aims to destroy all objects in Ukraine that could serve as an economic base for life, including railway stations, food depots, oil refineries. ”

Mr. Shmyhal said about $ 600 billion would be needed for the cost of restoring, rebuilding and transforming its economy. He said his government had asked a number of countries to give 10% of their unused special drawing rights – IMF-created monetary reserve assets – to help Ukraine after a global allocation of $ 650 billion last year to increase world liquidity.

Meanwhile, the World Bank estimates the physical damage to Ukraine’s infrastructure and buildings at $ 60 billion so far.

Ukrainian Prime Minister Denys Shmyhal, who visited Washington this week, says about $ 600 billion will be needed for Ukraine.


Photo:

Susan Walsh / Press Pool

World Bank President David Malpass suggested that reconstruction planning be underway. He said during Thursday’s roundtable discussion that reconstruction should begin with urgent repairs of important infrastructure such as transport, electricity, heating and digital connectivity within six to eight months after the end of the war. Efforts to strengthen cities, households, agriculture and businesses should be followed, he said.

“As the war continues, we will work to build trust in Ukraine’s financial, monetary and fiscal institutions,” he said. Malpass.

Officials from multilateral institutions said they hope to be able to support Ukraine’s short-term budgetary needs with subsidies from countries instead of loans requiring repayment, given the current dysfunction of the country’s economy. The IMF predicted last week that Ukraine’s economy would shrink 35% this year. Shmyhal said more than 60% of the country’s companies stopped their activities in whole or in part in March, including the Mariupol iron and steel plant, where Ukrainian soldiers have been detained.

Assembling a reconstruction package will be more complex. To persuade nations to make large resources available, Ukraine needs to commit to reviewing its economy while presenting plans to strengthen its long-term resilience, including environmental efforts, said Ms Renaud-Basso of the EBRD.

“Before the war, Ukraine had a huge reform agenda in terms of improving governance, fighting corruption and improving its judicial system,” she said. “These challenges remain and they need to be addressed in reconstruction if there is to be a lot of international support.”

It is also important to bring in private investment, officials said. On Thursday, US Deputy Finance Minister Wally Adeyemo and Ukrainian Finance Minister Sergii Marchenko invited leaders from top US financial entities to dinner to discuss how they could help rebuild Ukraine. Included was Bank of America Corp.

Goldman Sachs Group Inc.,

Citigroup Inc.

and Mastercard Inc.

“We believe that the only way to give us the energy we need to get out of the crisis is a huge amount of investment, private investment,” he said. Marchenko in an interview with The Wall Street Journal.

He said the group discussed possible reforms in Ukraine to address major private investment, including fighting corruption, improving the justice system and strengthening investor protection.

“It is wise to take some steps, some necessary steps, in order to attract further investment in Ukraine,” he said. Marchenko.

It is difficult to predict the extent of the damage and the cost of reconstruction as the war continues, officials said. It is clear that the amounts are going to be huge.

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After World War II, the UN High Commissioner for Refugees was set up to help three million Europeans displaced from their homes. Today, more than 4.5 million Ukrainians have fled the country and eight million more have been displaced internally, Georgieva said during the roundtable discussion with Ukrainian officials as she called on countries to help.

“Those of us who are well acquainted with European history are terrified on your behalf, but we are appalled on behalf of Europe and the world as well,” said Mrs Georgieva, a development economist born and educated in Bulgaria from the Cold War. “We have these rare moments in life where we find who we are and this is one of those moments.”

Write to Yuka Hayashi at yuka.hayashi@wsj.com

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