Reports that the Russian war in Ukraine may end this year reinforce the necessity of planning Ukraine’s post-war reconstruction. This column takes stock of what has been accomplished so far and what still needs to be done. Missing elements include a transparent and coherent tracking system for reconstruction aid; an institution to serve as a final coordinator of all financial aid, technical assistance, and expertise in support of reconstruction; and a Ukraine Development Bank to mobilise, allocate, and manage financial resources.
There is an increasing flow of news that the brutal Russian war in Ukraine may end this year, which reopens discussion on the necessity of planning Ukraine’s post-war reconstruction. Indeed, planning for reconstruction, to be effective, should get underway even before the conclusion of hostilities.
With this in mind, in 2022 we wrote a Vox column on how to organise aid for Ukraine (Eichengreen and Rashkovan 2022). So, it is time to take stock of what has been accomplished and sketch a way forward, especially considering that later this year several meetings on this topic are planned – from the Wilton Park conference in London in March to the Ukraine Recovery Conference (URC) in Rome in July.
Our 2022 column offered four specific proposals: (1) establish an agency to coordinate reconstruction efforts; (2) create a master multi-donor trust fund; (3) establish priorities for reconstruction; and (4) create a donor coordination mechanism.
Despite continued Russian aggression, multiple developments relevant to Ukraine’s reconstruction have occurred since then, some in line with our recommendations.
For one, an agency for restoration was created in January 2023, shortly after our column. This was a Ukrainian agency, however, not a joint EU-Ukraine effort as we recommended. In addition, it was not a brand-new organisation but based instead on an old government agency responsible for building roads. Yet, despite this limited expertise, it started playing an important role in the effort to repair war damages and plan for reconstruction.
Following the G7 leaders’ decision taken on 12 December 2022, a multi-agency donor coordination platform to support Ukraine’s reconstruction (now formally the Ukraine Donor Platform, or UDP) was established in January 2023. The UDP platform has brought together 23 permanent and temporary members and observers, with seven international financial institutions and organizations participating in its work. It has a secretariat in Brussels and Kyiv. Its Steering Committee has already met 12 times. While the platform organisation and work are far from superb, it is very positive fact that a dedicated group of experts meets regularly to discuss the organisation of support for Ukraine in a structured, institutionalized, coordinated way.
The Ukraine Co-Investment Platform, established by the development finance institutions (DFIs) of the G7 countries and the European Bank for Reconstruction and Development (EBRD) in May 2023, is another good example of coordination in support of Ukraine’s reconstruction. In June 2023 the platform was enlarged to 19 members via the addition of the European DFIs, thereby creating the EBRD-G7 DFI-EDFI Ukraine Investment Platform. It has been agreed that the EBRD, as the largest institutional investor in Ukraine, will act as the lead institution responsible for underwriting of financing under this platform.
Ukraine’s IMF programme, approved in March 2023, acts as a catalyst for international budget aid and provides a framework for reconciling reconstruction spending with macroeconomic stability. The programme, supported by US$148 billion in financing assurances from the G7, the EU and other donors, has been designed to solve Ukraine’s balance-of-payment problem and restore medium term external viability. This is important insofar as macrofinancial stability is a vital prerequisite for reconstruction.
The IMF programme’s conditionalities are also aligned with Ukraine’s own aim of EU accession. Indeed, Ukraine has already made progress on this accession agenda. The country received candidate status in June 2022. The European Council decided to open accession negotiations with the country in December 2023, and the first intergovernmental conference marking the formal launch of the accession negotiations was held on 25 June 2024. Given the pace of progress, the Ukrainian authorities are eyeing entry into the EU by 2030.
In all, over the first three years of the war Ukraine received budget support from international partners of nearly US$120 billion. US$78 billion of this has come since the start of the IMF programme in 2023. The €50 billion EU facility for Ukraine approved in February 2024 and US$50 billion Extraordinary Revenue Acceleration (ERA) mechanism to be financed using revenues from immobilised Russian assets, agreed by the G7 leaders during the Apulia summit in June 2024, are byproducts of the three aforementioned developments: the donor coordination platform, the IMF programme, and Ukraine’s path to EU accession.
Finally, in 2022, in preparation for the IMF programme, Ukraine with support from the World Bank undertook a comprehensive assessment of its public investment management framework (a PIMA assessment) (Shcherbyna et al. 2023). The PIMA became the basis for set of recommendations under the IMF programme, including building a robust screening process for the investment projects, creating a formal framework for prioritising capital spending items, establishing a single projects pipeline (SPP) for investment projects, and creating a Strategic Investment Council for their approval and integration into medium-term budgeting planning. These are all steps towards a more transparent and thoughtful approach to reconstruction. Further steps should include the creation of project preparation facilities (PPFs) and project implementation units (PIUs) to improve the quality of the projects proposals and their implementation.
The latest Rapid Damage and Needs Assessment (RDNA4) report (World Bank 2024) has provided estimates of direct war damages ($176 billion) and overall reconstruction needs over the next ten years ($524 billion). Unfortunately, such numbers are moving targets; they will have to be updated as the war proceeds. In addition, the reconstruction needs assessment should be a function of more than wartime damages, it should be based on the country’s vision of post-war Ukraine. Such a vision should assume not only ‘building back better’ but also ‘building back differently’, reflecting closer future ties to the EU, more clarity on the location of controlled borders, and pragmatic estimation of the country’s postwar population.
Disappointingly, recent donor conferences in Lugano (2022), London (2023), and Berlin (2024) have not encouraged such a vision or elicited much actual aid for reconstruction. So, the next major donor conference in Rome in July should be an occasion introducing these and other missing elements.
First, Ukraine needs a more transparent and coherent tracking system for reconstruction aid. The Kiel Institute has stepped into the breech, building the Ukraine Support Tracker currently used by media sources. But this system tracks aid commitments only in military, budgetary and humanitarian areas, and doesn’t focus on reconstruction. The tracker relies on open-source news; its estimates are not reconciled either by donors or the Government of Ukraine. With a proper, certified support tracker, it would be possible to avoid disputes like the recent one on US aid to Ukraine.
Establishing a robust system of reporting, performance metrics, and regular auditing could help sustain donor trust and ensure efficiency for the reconstruction process. A proper digital system could be built by the UDP based on the Kiel Institute database and methodology and merged with a project-based monitoring system in Ukraine (Fengler and Rashkovan 2024), such as the already existing Digital Restoration Ecosystem for Accountable Management (DREAM). Done properly, a centralised data and information-sharing platform accessible to donors, stakeholders, and implementing entities would enable effective tracking of projects, financial flows, and impact assessments, while enhancing quality of further reconstruction decisions.
Second, over time, the UDP itself could evolve into an Economic Cooperation Administration-type institution – the ECA having been the administrator of the Marshall Plan (Eichengreen 2022). Instead of periodic ad-hoc meetings of donors, with a hundred plus attendees, better would be to create a permanent institution with centres in Europe and Kyiv, with a permanent staff focused on developing a vision and strategy for reconstruction.
Aid is essential, but ownership of the reconstruction process should be in hands of Ukraine. Only Ukraine itself can determine its future and define a vision of the country it wants to build after the war (Berglöf and Rashkovan 2023). But an institution (perhaps named the Ukraine Reconstruction and Modernisation Agency, or URMA), jointly owned, overseen, and co-led by donor governments and representatives of the government of Ukraine, could serve as a final coordinator of all financial aid, technical assistance, and expertise in support of reconstruction. URMA could relax capacity constraints by providing international experts and training local counterparts for standing PPFs and PIUs, providing information from individuals on the ground at the regional level to those responsible for the SPP.
After WWII, the ECA administered the financial flows of the Marshall Plan through a coordinated funding and procurement mechanism. URMA could similarly oversee dedicated financial instruments (such as trust funds, guarantees, loans, grants, and blended finance) managed in partnership with multilateral banks and bilateral donor agencies and platforms, such as the EBRD-G7 DFI-EDFI Ukraine Investment Platform. Similar to the role played by ECA 80 years ago, URMA could develop strategic initiatives specifically targeting private sector development, encouraging foreign direct investment, and improving Ukraine’s postwar market access.
Mirroring the experience of another institution built to facilitate the Marshall Plan implementation – the Organization for European Economic Cooperation (OEEC) – URMA could create specialised technical working groups in key sectors such as housing, transport, energy, digital infrastructure, and agriculture, each staffed jointly by international and local experts. These groups would facilitate detailed planning, knowledge transfer, and synchronisation across reconstruction projects. OEEC’s model of combining high-level policy coordination with detailed operational committees should be followed. A clear division between strategic oversight (policy, funding approval) and operational management (implementation, technical assistance, day-to-day oversight) would streamline decision-making and improve efficiency in the course of a long reconstruction process.
Finally, a CEPR report issued in 2024 (Carletti et al. 2024) proposed the creation of a Ukraine Development Bank (UDB). We believe that the UDB could initially function as a trust fund, operating for example under the umbrella of the World Bank but as a separate legal entity (effectively, a financial intermediary fund) with its own governance steered by key donors. Its primary role would be to mobilise, allocate, and manage financial resources aimed at accelerating Ukraine’s economic reconstruction and modernisation. A ‘coalition of the willing’ – predominantly EU and G7 countries – could provide the initial capital for UDB. On top of that, UDB could be jointly co-financed by the major DFIs involved in the Ukraine’s reconstruction, for example, by the members of the EBRD-G7 DFI-EDFI Ukraine Investment Platform. Proceeds from confiscated Russian sovereign assets could be another source of its capital and funding.
Beyond initial shareholder contributions, additional capitalisation could come through innovative financing mechanisms, including borrowing against anticipated revenues from Ukraine’s substantial reserves of rare earth minerals and other critical raw materials. Recent international interest in Ukraine’s resource potential underscores the feasibility of such an approach. This forward-looking financial strategy would enable Ukraine to leverage future resource extraction to immediately support critical infrastructure and economic projects.
The UDB’s governance structure should balance efficiency, transparency, and accountability, involving management and oversight from international donors and partners and Ukrainian authorities and. Close coordination with the URMA would be essential to ensure that funded projects align closely with national reconstruction vision and priorities, and broader development objectives. Furthermore, the UDB could serve as a catalyst for private sector investment, providing guarantees and co-financing instruments that lower risks and encourage private capital inflows into strategic sectors.
Clearly, there is much to do, and it is past-due time to do it.
Source : VOXeu
