On 09 September the European Commission, World Bank and Ukrainian government released their Rapid Damage and Needs Assessment (RDNA) for Ukraine’s post-war recovery. But specifying needs does not mean they can be met immediately: how soon will depend on the availability of financing; on the absorptive capacity of the Ukrainian budget; on the private sector’s readiness to invest; and not least on the trajectory of the ongoing war. Hill+Knowlton Strategies Brussels’ Robbe Van Grembergen and Ties Lambermont explore.
What’s needed to rebuild Ukraine
According to the RDNA report some €350bn is needed, of which over €100bn is required to address the most pressing social, production and infrastructure needs in the immediate-to-short term (18-36 months). It is estimated that about 80% of the short-term needs will have to come from public financing or Russian assets frozen in Europe.
Ukraine’s western partners remain hesitant about using confiscated Russian oligarch assets to help fund the reconstruction. The scale of the task is such that there is a danger of tension between the plans developed by Ukraine itself and those prepared by bodies such as the European Investment Bank. The private sector’s willingness to invest billions in Ukraine will depend on the country’s security, ability to introduce war risk insurance schemes, and much-needed reforms.
A Marshall plan for Ukraine?
“The reconstruction of Ukraine requires a strategy similar to the Marshall Plan after World War II”, European Commission president Ursula von der Leyen and Germany’s chancellor Olaf Scholz said last month following the G7 conference in Berlin. Strong stuff. Already in May 2022 Von der Leyen had announced a plan to provide Ukraine with €9bn billion in financial assistance to cover the country’s budget deficit and keep the economy running.
So far the EU has released €6.7bn in macro-financial assistance, financial aid provided by the EU to partner countries experiencing a balance of payments crisis: €5.5bn of the package promised by von der Leyen, together with a €1.2bn emergency disbursement earlier this year. A second tranche of €0.5bn is expected to be disbursed before year end, while no date has been set for the remaining €3bn tranche, which is all but guaranteed to be postponed to 2023.
So far, so meh
The Ukrainian government has estimated it will need €3.5bn per month next year, and Washington has criticised the EU for its underwhelming assistance. As the EU works towards disbursing its remaining funds, a new package of €18bn has been announced for 2023. In practice, this would amount to €1.5bn per month for Ukraine – the same amount pledged by the US – even as billions of pledged EU aid approved more than half a year ago remain unpaid.
The loan package will still have to be approved by EU member states, some of which are sceptical about taking on responsibility for Ukraine’s increasing debt. The European Commission wants to make a first payment in January. It is hoped that the private sector will match this contribution to bring the support to the required level, to avoid public sector funding being overstretched in straitened times when economies across the EU are feeling the pinch and pain of inflation. But there is acknowledgement that preparing the ground for successful reconstruction effort is instrumental to supporting Ukraine’s path to EU membership.
That long and winding road
In a show of European solidarity in the face of Russian aggression, in June 2022 the EU granted Ukraine candidate status. This represented a massive acceleration on the road to European integration, and Von der Leyen has repeatedly made positive noises about the country’s application, most notably in her state-of-the-union address on 14 September. But EU accession is a notoriously lengthy procedure: it took a decade for post-dictatorship Portugal and Spain to join; December marks the fifteenth anniversary of Montenegro’s application.
Ukrainian and European leaders alike say Ukraine’s EU candidate status will be a strong anchor for its post-war reconstruction. Candidacy should also help spur the necessary economic and governance reforms EU membership entails. The EU will insist on mechanisms to tie the transfer of funds to the implementation of reforms to meet accession criteria. These require the candidate be a democracy, a market economy and comply with the EU standards (the acquis communautaire). This will take significant time and effort, and can only be begun once peace is assured. It remains to be seen whether a post-war Ukraine will be up to the task.