Ukraine reconstruction may cost $349 billion | Business | Economy and finance news from a German perspective | DW

Leonardo Rasaki

The cost of rebuilding Ukraine and its economy has already reached at least $349 billion (€346 billion), according to a new report jointly compiled by the World Bank, the European Commission and the Ukrainian government.

In the more than six months since Russia invaded Ukraine, the country has suffered widespread destruction. “The impact of the invasion will be felt for generations, with families displaced and separated, disruptions to human development, destruction of intrinsic cultural heritage and reversal of a positive economic and poverty trajectory,” the report states.

The report only covers the period up to June 1, meaning damage that has occurred in the past three months is not accounted for. It estimates that the cost of direct damage is $97 billion, with housing, transport, commerce and industry most affected.

Disruption to economic flows and production is estimated at $252 billion.

The findings underline the scale of the challenge Ukraine faces in trying to rebuild its economy, while it continues to fight off the Russian invasion.

The World Bank has given more than $13 billion in aid to Ukraine

“It is a staggering number,” Anna Bjerde, World Bank vice president for Europe and Central Asia, told DW. “We have to recognize that this war is having a devastating impact on Ukraine.”

The damage assessment comes alongside new economic data from Ukraine which shows that GDP in the country fell by 37% in the second quarter on an annual basis.

Rebuilding as the fighting continues

The World Bank report emphasizes that while a phased approach to reconstruction over several years is critical, around $105 billion is needed in the short term to rebuild social infrastructure such as schools and hospitals, repair transport links and to prepare for possible energy shortages this winter.

“What’s very important is that Ukraine continues to receive support from the international community to cover its day-to-day operating costs,” says Bjerde.

She added that despite inflationary pressures and the energy crisis causing problems for economies around the world, governments have rallied to support Ukraine. She hopes the report will help clarify for donors which areas need the most urgent assistance.

“I think what we can get back to countries who want to help Ukraine is that sense of methodology, analytics of how to prioritize when resources of course are not abundant, but they are there and that the needs are large,” she said.

She also emphasized that although the conflict is still raging in Ukraine, it is vital that the process of reconstruction begin now.

A volunteer soldier in battlegear wearing a camouflage scarf around his face attends training outside Kyiv.

As fighting continues in Ukraine, the cost of reconstruction continues to mount

“It becomes much more expensive to recover and reconstruct if you let institution services erode during war,” she said. “Supporting the country during the war prevents the further deterioration of livelihoods and poverty impacts.”

Ordinary lives shattered

For ordinary Ukrainians, the economic effects of the war are profound.

Ludmyla Makivska, a 70-year-old pensioner, lives in a village 100 kilometers (62 miles) from Kyiv. “I haven’t worked for four months and I’ve accumulated debts for utility services,” she told DW. “I get a pension, but it’s barely enough for food, so it’s good that I have my own garden where I grow potatoes and vegetables and two months ago I asked to go back to work because the heating season is coming. If there is debt, they will turn off the gas and water. Then what?”

Yuriy Kryshko, 35, lives in a small town in the Zhytomyr region in the north of the country. He works at a hygiene products factory. “There’s often no work, there are fewer shifts, but I fight for every penny,” he said. “The salary is often not paid on time. It’s already small anyway, and I also pay maintenance, so there’s not enough money for the most important things. I don’t know how to live. But at least I have a job, many of my friends have been laid off.”

Someone with no work is the 22-year-old student Vlad Kyriach. “The war has affected my life,” he said. “Prices have skyrocketed: fuel, food, services. I lost my job. I’m looking for a new job, but there are three times as many job seekers as there are job offers. I’m studying to become a lawyer. There are ads for my area of ​​expertise, but the salary being offered is not at all reasonable considering the prices which have grown cosmically.”

Poverty and daily hardship

The report says that poverty in Ukraine is projected to increase tenfold, with one in five Ukrainians expected to be living in poverty by the end of 2022.  The World Bank says soaring food prices, as well as displacement of millions of people due to the destruction of homes, are major drivers.

Head and shoulders of a bearded man with short hair can be seen in front of a white panel with black writing.

Ukrainian President Volodymyr Zelenskyy is confident the war can be won

It emphasizes that the projected increase in poverty will be greater than forecast, if governments and institutions around the world fail to provide enough financing to make up for Ukraine’s large and growing nonmilitary fiscal deficit.

“Ukraine has had to resort to a lot of domestic resource mobilization, including monetization, which has had inflationary pressures. So the more grant funding and economic help we can get to Ukraine, the better it is, because we need to provide that support so that Ukraine can also arrest some of the impact on the poor,” said Bjerde.

Preserving stability, reasons for hope

For Ukraine, the shock to the country’s economy has dramatically reversed progress made in recent years.

According to Ilona Sologub, an economist with Vox Ukraine, the country’s economy grew between 2016 and 2021 to restore GDP to the level it had been before Russia’s annexation of Crimea in 2014.

She says the war has had a dramatic impact on employment for people across the country. She says the most recent surveys found that around 40% of people who had work before the war have lost their jobs, while 50% of those still working have seen a cut in their wages.

“So, of course, people, some of them, lost their income and many people lost their purchasing power because of inflation. Many people had to relocate about their place of living,” she told DW.

A man standing on a barge oversees grain being loaded at a river port on the Danube.

The deal to resume grain exports from Ukraine following a blockade has provided some economic hope

She said the primary economic tasks now facing the Ukrainian government are to preserve macroeconomic stability and collect taxes to continue paying for the most essential services.

This week, the country’s central bank said that if there was a slowdown in the fighting, economic growth could resume in 2023. Despite the huge 37% contraction in GDP in the second quarter, some figures for August provided some optimism — especially those related to agriculture.

A deal between Ukraine and Russia recently brokered by the UN and Turkey has seen grain shipments from Ukraine to other countries resume following a months-long blockade. Grain is a crucial source of export revenue for Ukraine.

However, illustrating the type of uncertainty Ukraine faces when trying to rebuild its economy, Russian President Vladimir Putin this week hinted at revising the deal. He claimed that not enough grain was going to poor countries most in need.

Additional reporting by Liliia Rzheutska 

Edited by: Hardy Graupner

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