What is key to Ukraine

What is key to Ukraine's post-war growth

Arup Banerji, World Bank Regional Country Director for Eastern Europe: "Key to Ukraine's post-war growth - a more competitive market economy and strengthening the coverage and targeting of social ...

According to the forecasts of many experts and analysts, the war is protracted and may last for years. How does awareness of this affect financial, humanitarian and technical assistance to Ukraine? Do priorities change?

As we look back on this terrible year, I remain amazed and impressed by the resilience and bravery of Ukraine’s people and its leadership. But obviously, the longer Russia’s invasion of Ukraine continues, the greater the cost to Ukraine and its people, and the greater the financial need for recovery and reconstruction. Ukraine’s current and future financing needs are staggering. Ukraine still needs approximately about US$3-4bn/month just for essential services – pensions, salaries, education, social transfers – in this calendar yearMore is needed for critical investments to help repair – not even rebuild – destroyed infrastructure and to help farmers and businesses revive economic activity.

The government, faced with these challenges, has been clear on its priorities for economic needs, and has communicated this to all its development partners, including the World Bank. This is also based on the important data coming from the September 2022 Rapid Damage and Needs Assessment, but also the evolution of damages and needs since then. The first priority is continued support to the government budget for the core public services such as health, education, and social protection. The second is to repair and restore the energy system, which is continually under attack. Third is to help restore critical infrastructure – which includes repairing schools and hospitals, ensuring heating, electricity and water services, transport repairs for connectivity and service delivery, as well as repair of lightly damaged housing to ensure adequate shelter. Finally, boosting economic activity – including support to farmers for the next agricultural planting season, and support to small and medium businesses.

Fast recovery (sometimes called emergency repairs) must now run simultaneously with continued support for essential services, and planning for reconstruction efforts will also need to start before the war is over.

To what extent are you satisfied with the current reporting on the use of money, does it need improvement and what kind?

The major support the World Bank is engaged in in Ukraine is the project called Public Expenditures for Administrative Capacity Enhancement in Ukraine (shortened to the English acronym PEACE in Ukraine). This project has by now mobilized over $20 billion – and already distributed over $17 billion, and is the largest single project in the World Bank’s almost 80 year old history. It supports the government’s core social expenditures every month, using the Ministry of Finance’s reliable systems for transparency and verification. Specifically, once the government pays its civil servants and teachers, and provides funding to the national pension system, the World Bank verifies that these payments have gone to the intended beneficiaries. Once confirmed, we then make the disbursement to the government.  This helps to ensure that we know that the Government is funding the agreed expenditures and recipients – but we are also following up with specific audits and other verifications, and there are also opportunities for individuals to report if they are owed specific payments and they have not been paid. It is important to note that, despite this providing support to 12 million Ukrainians, there have been no major complaints or problems that we have found.

Going forward, as the World Bank moves more into helping Ukraine with recovery and eventually reconstruction, things will become more complex and will need additional strengthening of systems which we are discussing with the authorities– such as more systematic use of systems such as ProZorro.

According to the World Bank’s forecasts, the level of poverty in Ukraine may exceed 50%. In such conditions, is there room for liberal reforms, transition to market tariffs and pension reform?

Indeed, the invasion of Ukraine is a tragedy that is having far-reaching human and economic impacts. We estimate that 8 million additional Ukrainians are now living in poverty compared to before the war – which is a 15-year setback in poverty reduction in Ukraine.

At the same time, the remarkable resilience Ukraine and Ukrainians have shown is in large part attributable to the difficult and successful reforms in macroeconomic management and institution-building that the authorities undertook in recent years, prior to the war.

This attention to reform and deepening the capacity and transparency of governance will be essential for the transition to post-war recovery.

Throughout the recent reform period – both before and during the war – Ukraine has managed to balance efforts towards enhancing competition and economic efficiency with the protection of the most vulnerable. This is exemplified by the authorities’ ability to maintain critical social assistance and pension payments even as the war has squeezed its fiscal space. Maintaining this balance by continuing to realize opportunities that a more competitive market economy offers while strengthening the coverage and targeting of social assistance systems will be key to realize inclusive post-war growth that benefits all Ukrainians.

The World Bank was expected to update the RDNA in early 2023, compared to the first assessment on June 1, 2022. What is the reason for the delay? Is there already any previous data?

The next RDNA report – an update – will present a one-year snapshot of the impact from Russia’s invasion of Ukraine.  After February 24, the team will analyze the data and finalize the report and expect to share the report in early April 2023.

Ukraine estimates the need for financing Rapid Recovery Plan in 2023 at $17 billion. What are your assessments of Ukraine's needs and its ability to absorb aid for Rapid Recovery Plan?

The needs are, of course, enormous, and we will have reliable numbers once we have the RDNA update in a little over a month. But whatever the amount turns out to be, for both the Ukrainian authorities and their partners, the major challenge is establishing priority spending and then managing the spending process efficiently, transparently and effectively. There is a lot of detail that the Ukrainian authorities have to work out, with the help of its partners, in terms of new, streamlined processes that minimize bureaucracy but also manage the risks that come with a huge amount of spending over a very short time period.

As all of us work together on this, Ukraine will rely on a set of principles it adopted (in July 2022 at the Lugano Conference) to guide recovery planning. This includes transparency and good governance, balancing the needs of different oblasts, emphasizing local-level solutions and community needs, and ensuring that the spending is inclusive and especially addresses the needs of the poorest Ukrainians.

Ukraine created the Recovery Agency by combining "Ukravtodor" and the Agency for Infrastructure Projects. To what extent, in your opinion, can the new institution be a partner of the IFIs and other international partners in the recovery process? What requirements should it meet?

We have a long history of working with Ukravtodor and we are already working with the new Recovery Agency – under the recently approved Restoring Essential Logistics Infrastructure and Network Connectivity (RELINC) project, which helps repair critical road and rail connections damaged by the war.  We do envisage that collaboration to continue into the future. 

Many of the staff that have been taken into the new Recovery Agency have experience of implementing projects financed by the World Bank and other international partners.  Specifically, this includes knowledge of the Bank’s social, environmental, and fiduciary standards, which are essential for any project that we finance.  The requirements for other international financial institutions (IFIs) are broadly similar. We could therefore expect to see the new Recovery Agency become a key counterpart for multiple IFIs.  Maintaining and hopefully even expanding their capacity to implement IFI-financed projects to high standards will facilitate that.

At what stage is the structuring of the first projects for financing through the Ukraine Recovery Trust Fund (URTF)? What is the current confirmed/estimated amount of money raised by the fund in 2023? Which projects have the highest priority and what will be the distribution of funding between them?

The Ukraine Relief, Recovery, Reconstruction and Reform Trust Fund (URTF) was set up by the World Bank to coordinate grant financing for sustaining Ukraine’s government functions, delivering services, and implementing relief efforts. The URTF has received $295 million in donor contributions to date.

The first signed and approved URTF grant was announced on Feb 10, 2023, - $50 million to repair and restore Ukraine’s transport network to support immediate humanitarian relief and recovery, and increase capacity of import and export corridors through the RELINC Project. An additional $210 million in grant financing has also been committed to new recovery projects in the health sector – the HEAL Ukraine Project, which is improving and strengthening primary health care, addressing increased demand for mental health and rehabilitation services and supporting capacity building for key health institutions and soon the Restoration Project of Winterization and Energy Resources (REPOWER), which is helping Ukraine purchase key equipment to restore power to Ukrainians. The URTF will soon fund additional projects in the pipeline, as additional funds become available.

What is the best way to ensure the involvement of both foreign private capital and war-affected Ukrainian private business in the recovery process?

The international Finance Corporation (IFC), our private sector arm, is supporting the government to develop an approach to attract private investment and know-how for Ukraine’s reconstruction. IFC is also providing working capital to businesses and helping to keep Ukraine’s trade lines open. IFC has made recent investments totaling $95 million, including injection of capital, to help create jobs, accelerate the growth of Ukraine's technology sector and contribute to food security through sourcing and exporting grains from Ukraine. IFC and the EU are also channeling €50 million in grants to provide temporary accommodations for internally displaced people and to restore war-damaged residential buildings. In December 2022, IFC announced a $2 billion package to support Ukraine’s private sector focusing on agribusiness and on the provision of essential goods and services to the population.

The Multilateral Guarantee Agency (MIGA) is supporting Ukraine with guarantees to help attract investments to important sectors of the economy, including the financial sector. To further support reconstruction, MIGA is working to address the impacts of the war on the private sector through donor-supported guarantee issuance. 

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