The rapid recovery of Ukraine after the end of the war will require additional investments in the amount of about $50 billion per hour due to the inflow of foreign capital, including private capital. This is stated in the report of the European Bank for Reconstruction and Development (EBRD) “Regional Economic Prospects”.
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The EBRD notes that the rapid recovery of countries after an armed conflict is not the norm — most post-conflict economies do not recover to the pre-war level of income per capita, even in the long term. But 29% of economies actually reach the pre-war level of GDP per capita within five years.
“For Ukraine to recover within five years, its economy must grow by 14% per hour throughout this period. This will increase the average GDP to $225 billion from approximately $150 billion in 2022 at constant prices,” the report notes.
The EBRD notes that the main common feature of periods of sustained extremely high economic growth is a high investment-to-GDP ratio.
At the same time, before the full-scale war, moderate investments in Ukraine were mainly financed by domestic savings. Capital inflow was only 3% of GDP per hour in 2010-21. Foreign direct investment, as a rule, falls significantly after a conflict and requires a lot of time to recover.
In the case of Ukraine, doubling the level of investments (as a share of GDP) requires a significant increase in the country’s ability to absorb them, as well as the management structure necessary for the development of complex projects and the conclusion of contracts. This will also require appropriate financing, notes the EBRD.
“In this scenario, the difference between the required level of investment and the available domestic savings will probably have to be covered by external financing (net capital inflow) in the amount of 20% of GDP or $50 billion per hour,” the message states.
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The EBRD report also notes the importance of the balance of involvement of the private and public sectors in previous post-conflict reconstructions, along with the important role of foreign aid from bilateral and multilateral institutions.
“Private and state investments, as a rule, complement each other, in the post-conflict situation and in general. In addition to financing, the private sector provides much-needed technological experience, management know-how and a focus on economic efficiency,” the document says.
The report also talks about the usefulness of foreign aid both for overcoming short-term funding shortages and for ensuring the implementation of reform conditions.
The lack of such an impetus for reforms and broader efforts to build reliable economic and political institutions can hinder private investment, leaving “bureaucratic gridlock, corruption, or a high degree of informality caused by an institutional vacuum.”
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Source: Ministry of Finance