WASHINGTON — Top world financial officials gathered in Washington this past week to confront a grim picture of Russia’s growing economic costs in Ukraine’s war and the challenges they face in helping pay Ukraine’s short- and long-term bills.
Ukraine needs around $ 5 billion a month in budgetary support for up to five months and roughly $ 600 billion for a broader rebuilding effort, Ukrainian Prime Minister Denys Shmyhal said Thursday at a forum hosted by the World Bank during spring meetings held with the International Monetary Fund.
The two international financial institutions and several individual governments have started pledging contributions, but in interviews and public comments, officials acknowledged that much work lies ahead to come up with the funds needed.
“You will now see a big mobilization of the international community,” said Odile Renaud-Basso, president of the European Bank for Reconstruction and Development, in an interview 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-led multinational reconstruction program launched in 1948 that helped revive Europe’s economy through official aid and private investments.
The task comes at a challenging time for the world economy. Nations including the US are grappling with their own problems, including soaring inflation and slowing growth. Many developing countries — facing higher food and fuel prices and ballooning debt burdens in the midst of 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 issue everybody is grappling with is… how do you do policy-making in this world when you have a crisis upon a crisis and you haven’t recovered from the first crisis yet,” Gita Gopinath, first deputy managing director at the IMF, said in an interview.
Nonmilitary support for Ukraine and developing country debt stress were top topics for finance ministers and central bankers attending the meetings.
Ukraine’s financial needs, according to officials from Kyiv and the multilateral groups, fall into two main categories: short term and long term.
The country needs roughly $ 5 billion every month to cover essential government services over the next two to three months, according to the IMF’s managing director, Kristalina Georgieva, referring to a budgetary shortfall resulting from a drop in revenue and increased costs such as caring for the wounded. soldiers and displaced citizens.
Ukrainian President Volodymyr Zelensky told the delegates in his video appearance at a World Bank roundtable on Ukraine aid Thursday that “the Russian military aims at destroying all objects in Ukraine that can serve as an economic base for life that includes railroad stations, food warehouses, oil refineries. ”
Mr. Shmyhal said about $ 600 billion would be needed for the costs of recovery, reconstruction and transformation of its economy. He said his government has asked a number of countries to provide 10% of their unused special drawing rights — IMF-created monetary-reserve assets — to help Ukraine after a $ 650 billion global allocation last year to boost world liquidity.
Meanwhile, the World Bank estimates the physical damage to Ukraine’s infrastructure and buildings at $ 60 billion so far.
World Bank President David Malpass suggested that reconstruction planning is under way. He said during the Thursday roundtable that the rebuilding should start with urgent repairs to essential infrastructure such as transportation, power, heating and digital connectivity within six to eight months of the end of the war. Efforts to strengthen cities, households, agriculture and businesses should follow, he said.
“As the war continues, we will work to build confidence in Ukraine’s financial, monetary and fiscal institutions,” Mr. Malpass said.
Officials from multilateral institutions said they hope to provide support for Ukraine’s short-term budgetary needs with grants from countries, rather than loans that require repayments, given the current dysfunction of its economy. The IMF projected this past week that Ukraine’s economy would shrink 35% this year. Mr. Shmyhal said more than 60% of the country’s businesses stopped their operations completely or partially in March, including the iron and steel works plant in Mariupol, where Ukrainian soldiers have been holed up.
Putting together a package for reconstruction will be more complex. To persuade nations to provide sizable resources, Ukraine needs to pledge to overhaul 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 will have to be addressed in the reconstruction if there is to be a lot of international support.”
Bringing in private-sector investments is also essential, officials said. On Thursday, US Deputy Treasury Secretary Wally Adeyemo and Ukrainian Finance Minister Sergii Marchenko invited executives from top US financial institutions for dinner to discuss how they could help in rebuilding Ukraine. Included were Bank of America Corp.
Goldman Sachs Group 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 accommodate greater private investment, including fighting corruption, improving the judicial system and bolstering investor protections.
“It’s wise to do some steps, some necessary steps to be able to attract additional investment into Ukraine,” Mr. Marchenko said.
Predicting the extent of the damage and the cost of reconstruction is difficult as the war continues, officials said. Clearly the amounts will be huge.
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After World War II, the UN High Commissioner for Refugees was established to help three million Europeans displaced from their homes. Today more than 4.5 million Ukrainians have fled the country, and eight million more are displaced internally, said Ms. Georgieva during the roundtable with Ukrainian officials, as she urged countries to help.
“Those of us who know European history are horrified for you, but we are horrified for Europe and the world as well,” said Ms. Georgieva, a development economist born and trained in Cold War-era Bulgaria. “We have these rare moments in life when we find out who we are, and this is one of those moments.”
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