World Bank regional director explains Ukraine reconstruction costs – and who will foot the bill

9 September, 07:30 PM
Arup Banerji in Kyiv (Photo:World Bank Press Office)

Arup Banerji in Kyiv (Photo:World Bank Press Office)

On Sept. 9, the World Bank, the Government of Ukraine and the European Commission presented a joint analytical report entitled “The Rapid Damage and Needs Assessment” (RDNA), on Ukraine’s war losses and its reconstruction, World Bank Regional Director for Eastern Europe (Belarus, Moldova and Ukraine) Arup Banerji told NV Business in an interview.

Experts from all three bodies have jointly calculated the cost of Ukraine’s destroyed infrastructure and estimated how much would be needed for its restoration, as of June 1. The report covers not only damaged property, but also preparations for the winter, which, because of the war, will be one of the most difficult cold seasons in the modern history of Ukraine.

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Ukraine needs $349 billion to restore its destroyed social and industrial sectors and infrastructure. This is 1.5 times more than the country’s pre-war GDP in 2021. Over the next 36 months, Ukraine will require about $105 billion to meet urgent needs, such as rebuilding education and health systems and infrastructure, preparing for the coming winter, etc.

World Bank Vice President for Europe and Central Asia Anna Bjerde, Ukrainian Prime Minister Denys Shmyhal and Vice President of the European Commission Maroš Šefčovič discussed the report in Brussels on Sept. 9.

NV Business had the opportunity to ask Banerjee about the report itself, its calculation methodology, as well as the sources for financing Ukraine’s multi-billion needs.

The report estimates the cost of direct damage as of June 1 at more than $97 billion. Isn't this too conservative an estimate, considering that the destruction in the occupied territories is not known for sure?

RDNA is an exercise by the Government of Ukraine with the World Bank and the Euro-pean Union, using internationally recognized methodology and developed by World Bank experts working closely with the Government and other partners. A description of the international methodology can be found here and the RDNA report provides more details on the application of this methodology to Ukraine.

Indeed, the $97 billion is considered a minimum number, given the various limitations specified in the report – including challenges with obtaining data in areas not currently under Government control. Further assessments will need to be made in the future, and the assessment will be refined, depending on the trajectory of the war.

– Short-term urgent needs for rebuilding hospitals, schools, infrastructure and preparing for winter cost about $105 billion. Most of this is for non-profit facilities. Will WB and other creditors expect to recoup these funds? What is the ratio of loans/grants?

The Ukrainian government is in discussions with international partners for immediate and urgent repairs – the repairs and winter preparations that the government considers most critical were first outlined to the international community by the government during the RDNA launch on September 9. Over the next weeks, the government will continue urgent discussions with all partners about how to fund this. 

Depending on the partner, the funds can be in grants or loans. In the case of loans, those now availed by Ukraine are highly concessional (compared to borrowing from the financial market) and will be repaid over decades. Ukraine’s partner countries have already provided a significant amount of grant financing to Ukraine – for humanitarian purposes and to support critical budget expenses (led by the United States, which, through the World Bank, will have transferred over US$8 billion in grants for pensions, social payments, salaries and medical expenses by mid-September).

– The most affected area is housing. What share of financing can WB provide and under what conditions?

The rebuilding of housing will be a massive endeavor, especially in the parts of Ukraine that have been devastated by the war and/or are not currently under Government control. But there is also a need for temporary housing to accommodate those Ukrainians who are internally displaced. Given that much of the housing destroyed is private, the rebuilding will need to incorporate private sources as well as government funding.

We anticipate that partners, including the World Bank, will help the government find initial public resources to initiate the repair of houses and to provide temporary housing. However, over the years, it will also be essential for private firms and charitable foundations to also come in to support the rebuilding of housing. It is also important that housing reconstruction programs incorporate measures towards a low-carbon, greener, more inclusive, and resilient future.

– Because of the war, Ukraine is becoming a poor country. According to the report, by the end of the year, 21% of the population will be below the poverty line, or even 34% — if the hryvnia issue continues. In your opinion, what are the most important steps needed to break the trend? Of course, except for the end of the war.

From the World Bank’s global experience in war-affected countries, the greatest short-term need is to maintain the effective functioning of governments services That is why most of our current support is focused on one project – the Public Expenditures for Administrative Capacity Enhancement in Ukraine (the PEACE in Ukraine project). This project is due to channel more than US$9 billion in grants and loans from the World Bank and other partners to support essential government expenditures such as salaries for essential workers (including teachers and emergency first responders), payments to internally displaced persons (IDPs), pensions, social payments and public health expenses. This is aimed to stop poverty from rising to catastrophic levels, and to keep essential services continuing.

But poverty will only be reversed if Ukraine’s economy can grow – both during and even more importantly after the war. This will require critical reforms to be sped up to free Ukraine from capture by a few special interests, the creation of dynamic new firms and new jobs, improved agricultural production (especially for export to the EU), and for 21st century education for Ukraine’s children, the best investment in the future.

– It is noted that $5.1-7.2 billion will need to be spent on gas by winter. At the same time, the gap between the purchase and sale price will be $4-6 billion. Will the World Bank finance this purchase? Is financing possible in another way?

The resources needed for gas purchases is enormous – and higher than one organization or one partner country can provide. Fortunately, Naftogaz already has some of its own resources, and Ukraine already has received some of these resources from partners – for example from Canada and from the European Bank for Reconstruction and Development (EBRD).

– What can convince international partners to finance Ukraine's needs more actively? How is further cooperation generally possible? You will finance the state, and it will independently allocate costs depending on needs, or do you not exclude direct financing of individual industries and enterprises?

Ukraine’s needs are very large, and unfortunately full reconstruction will be a long process – one that will take many years. Most importantly, the biggest investments Ukraine will not be met only by the government but will need to come from the private sector, where commercial firms and private entrepreneurs will have to devote re-sources to build new industries and to revive old companies to generate jobs, income and wealth for Ukraine.

The World Bank, by our mandate, works with the central government, and helps finance priority public investments. Other organizations – including our sister organization the International Finance Corporation (IFC), EBRD, and agencies from partner countries – can and will invest in individual industries and enterprises.

One thing is certain, Ukraine’s main international partners are committed to help finance Ukraine’s needs, and we will all try our best to be reliable partners to Ukraine’s people, government and private sector over the next years.

Do you think it is necessary to control the spending of money raised by Ukraine for reconstruction?

Given the enormous needs – and limited resources – establishing priority spending and then managing the spending process efficiently, transparently and effectively is one the major challenges both for the Ukrainian authorities and their partners.

The Lugano Principles, a new set of principles agreed upon during an international meeting in Lugano, Switzerland, call for the recovery effort “to be based on a sound and ongoing needs assessment process, aligned priorities, joint planning for results, accountability for financial flows, and effective coordination.” According to these principles, which are echoed in the RDNA, the guiding principles for recovery planning include transparency and good governance, balancing the needs of different oblasts, emphasizing local-level solutions and community needs, and ensuring that the spend-ing is inclusive and especially addresses the needs of the poorest Ukrainians.

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