Ukraine’s five-year recovery period will require additional investments of about USD 50 billion per year.
According to Ukrinform, EBRD reported this.
“The latest report of the European Bank for Reconstruction and Development (EBRD) “Regional Economic Prospects” sets out a scenario that demonstrates, based on the lessons of history, that the five-year recovery period will require additional investments of about USD 50 billion per year due to the inflow of foreign capital, including private capital,” the report says.
It is noted that most economies that emerge from armed conflict neither experience a sustained period of peace for 25 years afterwards nor do they recover to pre-war levels of per capita income, even in the long run. But the report finds that 29% of economies do reach pre-war GDP per capita levels within five years. This study combines the common features of successful reconstruction that could guide Ukraine and extrapolates pre-war trends based on the performance of economies similar to those during the war.
For Ukraine to recover within five years, its economy would have to grow by 14% per year for the entire period. This would raise average GDP to USD 225 billion from about USD 150 billion in 2022 at constant prices.
The main feature that is common to periods of sustained extremely high economic growth is a high investment-to-GDP ratio.
Prior to Russia’s war, moderate investment in Ukraine was largely financed by domestic savings. Capital inflows amounted to only 3% of GDP per year in 2010-2021. Foreign direct investment tends to drop significantly after a war and takes a long time to recover. When domestic savings were low, foreign financing helped fuel a number of investment booms, notably in Central and Southeastern Europe in the 2000s.
In the case of Ukraine, doubling the level of investment (as a share of GDP) would require a significant increase in the country’s absorptive capacity, as well as the governance structure needed to develop complex projects. It would also require adequate financing.
“In this scenario, the difference between the required level of investment and available domestic savings would likely need to be covered by external financing (net capital inflows) of 20% of GDP or USD 50 billion per year,” the report said.
The report of EBRD, the largest institutional investor in Ukraine, also emphasizes the importance of an appropriate balance of private and public sector involvement in previous post-war reconstruction, along with the important role of external assistance from bilateral and multilateral institutions.
“Private and public investments tend to be complementary, in post-war situations and in general. In addition to financing, the private sector provides much-needed technological expertise, management know-how, and a focus on cost-effectiveness,” the document comments.