WASHINGTON — World top financial officials gathering in Washington last week were faced with a bleak picture of the mounting economic cost of Russia’s war in Ukraine and the challenges they face to pay off the short- and long-term to contribute accounts of Ukraine.
Ukraine needs about $5 billion a month in budget support for up to five months and about $600 billion for broader reconstruction efforts, Ukrainian Prime Minister Denys Shmyhal told a forum hosted by the World Bank during spring meetings with the International Monetary Fund on Thursday .
The two international financial institutions and several individual governments have begun pledged contributions, but in interviews and public comment, officials acknowledged there is still work to be done to raise the necessary funds.
The EBRD’s Odile Renaud-Basso said that Ukrainian support comparable to the Marshall Plan after World War II was 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 is thinking about something like a Marshall Plan for Ukraine, like what happened after World War II,” she said, referring to the US multinational reconstruction program launched in 1948, which helped revitalize Europe’s economy through official aid and private investment .
The task comes at a challenging time for the global economy. Nations, including the US, are grappling with their own problems, including rising inflation and slowing growth. Many developing countries, facing higher food and fuel prices and mounting debt burdens amid rising interest rates and an ongoing pandemic, say they need help from rich governments and international financial institutions like the IMF and World Bank.
“The big issue everyone is grappling with is… how do you do politics in this world when you have crisis after crisis and you haven’t recovered from the first crisis,” Gita Gopinath, IMF First Deputy Executive Secretary, said in an interview.
Non-military support to Ukraine and debt stress in developing countries were the main themes of finance ministers and central bankers attending the meetings.
Ukrainian President Volodymyr Zelenskyy spoke about Russian military targets in a video appearance at a World Bank roundtable this week.
Photo: Grant Ellis/World Bank Group/Shutterstock
According to officials from Kyiv and the multilateral groups, Ukraine’s financing needs can be divided into two main categories: short-term and long-term.
The country needs about $5 billion each month to cover essential government services over the next two to three months, according to IMF Managing Director Kristalina Georgieva, including soldiers and displaced citizens.
Ukrainian President Volodymyr Zelenskyy told delegates in his video appearance at a World Bank roundtable on aid to Ukraine on Thursday that “the Russian military aims to destroy any objects in Ukraine that can serve as an economic basis for life, including train stations, food storage facilities and oil refineries.”
Mr Shmyhal said about $600 billion would be needed to cover the cost of recovering, rebuilding and transforming its economy. He said his government has asked a number of countries to allocate 10% of their unused Special Drawing Rights – currency reserves created by the IMF – to help Ukraine boost global liquidity after a global allocation of $650 billion last year.
Meanwhile, the World Bank estimates physical damage to Ukraine’s infrastructure and buildings at $60 billion so far.
Ukrainian Prime Minister Denys Shmyhal, visiting Washington this week, says about $600 billion is needed for Ukraine.
Photo: Susan Walsh/Press Pool
World Bank President David Malpass indicated that recovery planning was underway. He said during Thursday’s roundtable that reconstruction should begin within six to eight months after the war ended, with urgent repairs to essential infrastructure such as transport, electricity, heating and digital connectivity. Efforts to strengthen cities, households, agriculture and businesses should follow, he said.
“As the war rages on, we will work to build trust in Ukraine’s financial, monetary and fiscal institutions,” Mr Malpass said.
Officials at multilateral institutions said they hope to support Ukraine’s short-term fiscal needs with grants from countries, rather than loans that require repayments, given the current dysfunction of their economy. The IMF last week forecast that Ukraine’s economy would contract by 35% this year. Mr Shmyhal said more than 60% of the country’s companies shut down all or part of their operations in March, including the iron and steel works in Mariupol, where Ukrainian soldiers are holed up.
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Putting together a package for reconstruction is becoming more complex. To persuade nations to commit significant resources, Ukraine must commit to reforming its economy while presenting plans to strengthen its long-term resilience, including environmental efforts, said the EBRD’s Ms Renaud-Basso.
“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 need to be addressed in recovery if there is to be much international support.”
It is also important to bring in private sector investment, officials said. On Thursday, US Deputy Treasury Secretary Wally Adeyemo and Ukraine’s Finance Minister Sergii Marchenko hosted executives from top US financial institutions for a dinner to discuss how they could help Ukraine’s reconstruction. Included were Bank of America Corp., Goldman Sachs Group Inc., Citigroup Inc. and Mastercard Inc.
“We believe that the only way to give us the necessary energy to get out of the crisis is a huge amount of investment, private investment,” Mr. Marchenko said in an interview with the Wall Street Journal.
He said the group discussed possible reforms in Ukraine to allow greater private investment, including fighting corruption, improving the judicial system and strengthening investor protections.
“It is prudent to take some steps, some necessary steps, to attract additional investment to Ukraine,” Mr Marchenko said.
Predicting the extent of the damage and the cost of rebuilding is difficult as the war is ongoing, officials said. Of course, the amounts will 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 another eight million have been internally displaced, Ms Georgieva said during the roundtable with Ukrainian officials, urging countries to help.
“Those of us who know European history well are appalled for you, but we are also appalled for Europe and the world,” said Ms. Georgieva, a development economist who was born and educated in Cold War-era Bulgaria. “We have those rare moments in life where we find out who we are, and this is one of those moments.”
write to Yuka Hayashi at [email protected]
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