The grim economic toll of the war in Ukraine confronts world governments
WASHINGTON — Top global finance officials gathered in Washington last week faced a grim picture of the mounting economic costs of Russia’s war in Ukraine and the challenges they face to help pay the short and long bills. Ukrainian term.
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 Thursday during a a forum hosted by the World Bank during the Spring Meetings held with the International Monetary Fund.
The two international financial institutions and several individual governments have begun pledging contributions, but in interviews and public comments, officials acknowledged that much work remains to be done to find the necessary funds.
“You are now going to see a great mobilization of the international community,” said Odile Renaud-Basso, president of the European Bank for Reconstruction and Development, 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. United launched in 1948 which helped revive the European economy through public aid and private investment.
This task comes at a difficult time for the global economy. Nations, including the United States, are grappling with their own problems, including soaring inflation and slowing growth. Many developing countries, faced with rising food and fuel prices and mounting debt burdens amid rising interest rates and a lingering pandemic, say they need help from wealthy governments and international financial institutions such as the IMF and World Bank.
“The big problem that everyone is struggling with is…how do you do policymaking in this world when you have crisis upon crisis and you haven’t recovered from the first crisis yet,” Gita Gopinath, first deputy managing director of the IMF, said in an interview.
Non-military support for Ukraine and developing country debt stress were the main topics of finance ministers and central bankers attending the meetings.
Ukraine’s financial needs, according to officials in Kyiv and multilateral groups, fall into two main categories: short-term and long-term.
The country needs about $5 billion every month to cover essential public services over the next two to three months, according to IMF Managing Director Kristalina Georgieva, referring to a budget shortfall resulting from falling income and increased costs such as care for the injured. soldiers and displaced citizens.
Ukrainian President Volodymyr Zelensky told delegates during his video appearance at a World Bank roundtable on aid to Ukraine on Thursday that “the Russian military aims to destroy all objects in Ukraine that can serve economic base to life, including railway stations, food warehouses, oil refineries.
Mr Shmyhal said around $600 billion would be needed for the costs of reviving, rebuilding and transforming his economy. He said his government had asked a number of countries to provide 10% of their unused special drawing rights – the monetary reserve assets created by the IMF – to help Ukraine after a global allocation of $650 billion. last year to boost global liquidity.
Meanwhile, the World Bank estimates physical damage to Ukraine’s infrastructure and buildings at $60 billion so far.
World Bank President David Malpass suggested reconstruction planning was underway. He told Thursday’s roundtable that reconstruction should begin with urgent repairs to critical infrastructure such as transport, electricity, 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,” Malpass said.
Officials of multilateral institutions said they hoped to provide support for Ukraine’s short-term fiscal needs with country grants, rather than loans that require repayments, given its currently dysfunctional economy. The IMF predicted last week that Ukraine’s economy would contract by 35% this year. Mr Shmyhal said more than 60% of the country’s businesses shut down fully or partially in March, including the Mariupol steel plant, where Ukrainian soldiers were entrenched.
Mounting a package for rebuilding will be more complex. To persuade nations to provide significant resources, Ukraine must commit to restructuring its economy while presenting plans to build long-term resilience, including environmental efforts, said the EBRD’s Renaud-Basso.
“Before the war, Ukraine had an extensive 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 reconstruction if there is to be much international support.”
The influx of private sector investment is also essential, officials said. On Thursday, U.S. Treasury Undersecretary Wally Adeyemo and Ukrainian Finance Minister Sergii Marchenko invited leaders of major U.S. financial entities to dinner to discuss how they could help rebuild Ukraine. Included were Bank of America Corp.
Goldman Sachs Group Inc.,
and Mastercard Inc.
“We think the only way to give us the energy to get out of the crisis is a huge amount of investment, private investment,” Marchenko said in an interview with The Wall Street Journal.
He said the group had discussed possible reforms in Ukraine to welcome more private investment, including fighting corruption, improving the judicial system and strengthening investor protections.
“It is wise to take certain steps, certain necessary steps to be able to attract additional investment to Ukraine,” Marchenko said.
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 will be enormous.
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After the Second World War, the United Nations High Commissioner for Refugees was created to help three million Europeans displaced from their homes. Today, more than 4.5 million Ukrainians have fled the country and another eight million are internally displaced, Ms Georgieva said during the roundtable with Ukrainian officials, as she urged countries to help.
“Those of us familiar with European history are horrified for you, but we are also horrified for Europe and the world,” said Ms Georgieva, a development economist born and trained in then Bulgaria. of the Cold War. “We have those rare moments in life when we discover who we are, and this is one of those moments.”
Write to Yuka Hayashi at [email protected]
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