THE WESTERN WORLD DOES NOT LEAVE UKRAINE IN NEED. HE SUPPORTS THEM MILITARY BUT ALSO FINANCIALLY AND IS PREPARING A HUGE PACKAGE OF ASSISTANCE FOR THE REBUILDING OF THIS COUNTRY.

In June this year, an international conference was held in London devoted to financial support for Ukraine and developing a model for rebuilding the country after war damage. The event was attended by donor countries, represented by foreign ministers, the European Commission and leaders of international organisations.

The conference aimed to support Ukraine politically and signalled the transition from declarations and statements to actions. The Western world intends to use international institutions to coordinate and implement financial assistance to Ukraine.

In my opinion, the affairs of Ukraine are in good hands. British Prime Minister Rishi Sunak is at the forefront of intergovernmental action. This is promising as the UK has a political consensus on the need to support Ukraine, and London is the world’s financial capital alongside New York. In addition, the World Bank (WB), the International Monetary Fund (IMF), and their agencies act as leaders and coordinators of financial support. These organisations have been active in Ukraine for years, having proven assistance mechanisms. This group is also joined by the European Commission, which has its support programme.

The current state of Ukraine’s finances

Yulia Swiridenko, First Deputy Prime Minister and Minister of Economy presented the current state of Ukraine’s finances. Ukraine needs urgent financial assistance to cover the budget deficit already this year. Estimated needs are $3 billion a month to cover expenses related to social assistance, pension payments and public services, including medical care and education. In 2022, Ukraine’s Gross Domestic Product (GDP) fell from USD 361 billion to USD 161 billion. The country is largely cut off from tax revenues and cannot finance its needs. At the same time, USD 14 billion is needed to reconstruct the critical infrastructure network in 2023 urgently.

The reconstruction of Ukraine should not only have a reconstruction character but also a modernisation one. This is a historic opportunity to modernise the country. The government of Ukraine forecasts that the reconstruction costs will be in the range of USD 500-900 billion. However, this is still an open amount, given the ongoing war. The World Bank puts this amount at USD 411 billion.

An insurance guarantee mechanism

The World Bank coordinates the mechanism for financing Ukraine’s budget deficit through the PEACE programme. The program’s funds come from WB loans, government grants and government guarantees, based on which the WB borrows on the financial market. Under this programme, the launch of the next tranche of emergency aid was confirmed during the conference in London. The tranche includes a USD 500 million long-term loan from the World Bank, a USD 1.25 billion UK government guarantee, a grant of USD 1.3 billion from the United States and a grant of EUR 15 million from Finland. The UK has also announced that over the next three years, it will allocate USD 3 billion for government guarantees and put them at the disposal of the World Bank. The President of the European Commission, Ursula von der Leyen, assured that the EU would finance 50% of Ukraine’s budget deficit in the coming years. Ukraine has ongoing funding, which is essential. At the same time, plans were discussed in London’s long-term reconstruction of Ukraine. On the initiative of Prime Minister Rishi Sunak, an international coalition of companies was created that declared their willingness to invest and participate in the reconstruction of Ukraine. It was signed by 400 companies from 36 countries as part of the Ukraine Business Compact. These are still only declarations, but Prime Minister Sunak has announced actions. First, it intends to encourage businesses to invest by creating an insurance guarantee mechanism to protect against risk. As part of cooperation with the World Bank and the IMF, a guarantee fund will be created, supported by government funds and guarantees from the coalition of Ukraine’s donor countries.

It is worth emphasising that Deputy Prime Minister Swiridenko discussed the directions of reforms in Ukraine. These include decentralising the state, reducing the tax burden on business, limiting the redistributive functions of the state budget to 25% and ensuring the transparency of activities. Ukraine is planning a very ambitious country development programme to increase its Gross Domestic Product (GDP) to USD 1 trillion within 10 years, which means a more than 6-fold increase. This is an ambitious goal.

To sum up, the most important thing is that Ukraine is not left alone but has a coalition of donor countries and international organisations behind it. Ukraine’s financial needs are secured thanks to the international community’s support. The good news is that despite the ongoing war, we are not wasting time but are preparing accurate reconstruction plans for Ukraine. It is also a time for Polish businesses, which should not passively observe but actively act. How to do it? It’s worth listening to people with experience.

JAROSŁAW ANDRZEJ SZCZEPEK PhD in economics