Ukraine’s post-war recovery: financing, governance and reform strategies

A mother walks with her young son on a playground in the city of Borodyanka, Kyiv region, destroyed by Russian shelling in November 2022. Photo: Olga Kovalova / Shutterstock

While the Russian invasion of Ukraine is still not over, it is time to discuss the post-war recovery of Ukraine’s economy and build a plan for achieving it. Overall, the Ukrainian Ministry of Economy, together with the Kyiv School of Economics, estimated that as of March 2024, both direct and indirect losses, such as GDP decline, investment cessation and the outflow of labour, had cost Ukraine between 543 and 600 billion US dollars.

The Ukrainian recovery will take years and will be an immense undertaking for Ukrainians, as well as their partners. Kyiv is already receiving significant economic support from its western allies and its budget is highly reliant on this aid. As of September 2024 the EU provided Ukraine with 133 billion dollars in financial, military, humanitarian and refugee aid, committing up to 54 billion dollars until 2027. Additionally, the G7, in cooperation with the EU, agreed to provide approximately 50 billion dollars that will be serviced and paid for by future flows of revenues from Russian frozen assets.

Under normal circumstances, the entire amount for financing the Ukrainian reconstruction programme and other forms of compensation would have to come from Russia. This would have appeared in the form of reparations in accordance with a treaty ending the war. However, Russia’s consent to such an agreement seems very unlikely.

Given this, it is necessary to find other sources of financing. One of these is the frozen foreign accounts of the Central Bank of the Russian Federation, the total amount of which reaches 300 billion US dollars. Discussion concerning the transfer of these financial resources for the rebuilding of Ukraine is ongoing among both society and senior western officials.

However, it is worth noting that the transfer of confiscated Russian state accounts is a difficult task from a legal point of view. This is especially true given the current lack of legal mechanisms for confiscating Russian assets, as well as the political risks. In particular, third countries may lose trust in European and American banks and even gradually withdraw their assets from such financial institutions.

In order to minimize such risks, it is advisable to agree on a mechanism for confiscating Russian property based on the results of consultations with both western countries and other major powers.

It is necessary to reassure the international community that this process will not become a common practice. Instead, it is an ad hoc mechanism for fair punishment and a warning against violating the foundations of the international order and law.

The best case scenario is to receive support to confiscate frozen Russian funds from the UN General Assembly. Yet, individual talks with countries such as China, India and Turkey, who have better relations with Russia, could partially replace the need for their open support for the confiscation of Russian assets in the West.

Given the complexity of the process, it becomes obvious that it could be quite lengthy (if at all possible). As a result, the most likely source of funds for Ukraine’s reconstruction will be its partners.

However, even with the funds that are obtained either from partners or Russian assets, there is still the problem of their proper usage by Ukraine. In the Corruption Perceptions Index published by Transparency International, out of 180 countries and territories Ukraine is ranked as 103rd. Corruption frequently impedes reconstruction as foreign companies are often forced to pay officials in order to gain a permit for their operations.

Additionally, Ukraine struggles to adhere to western norms, including freedom of speech, the rule of law, and the protection and observance of human rights. Freedom House recognized Ukraine as “partly free” with a score of 49 out of 100 in 2024 (a one point decrease compared to 2023). At the same time, the absolute majority of countries in the European Union are “free” with high scores.

Considering corruption and problems with adhering to western norms, supporting the post-war recovery of Ukraine should not be done simply by transferring funds to Ukraine’s government. Instead, it would be better to establish a kind of “Organization for the Recovery of Ukraine” that would be tasked with managing and auditing funds provided for recovery. Such an organization should include representatives of all partners of Ukraine, who will directly participate in the reconstruction of the country.

The financing of the Organization should be carried out using resources provided by its members. If Russia’s assets are successfully confiscated, they should be transferred to the Organization with the consent of Ukraine.

Firstly, this will reduce the burden on the budgets of the Organization’s members. Secondly, if the Organization is created, it is absolutely crucial for it to have at its disposal financial resources intended for the rebuilding of Ukraine.

It goes without saying that any assistance to Kyiv must be provided with certain conditions, namely that it should be aimed at raising standards in the fields of human rights, the rule of law, democracy, etc. in line with EU standards.

The optimal methods of financing the reconstruction of Ukraine are grants, technical assistance, investment guarantees and loans. The proposal to use grants as the main method of finance is mentioned in the report issued by German Marshall Fund in the US. Taking into account the current state of the Ukrainian economy, there is a need to provide the country with the opportunity to invest in reconstruction, including with its own resources, and not be burdened with the repayment of excessive loans.

Technical assistance should also become an integral part of the plan for the reconstruction of Ukraine, taking into account available knowledge and practices in the West that can be adopted by Ukrainian professionals.

Investment guarantees are in turn necessary to attract foreign and domestic capital to the rebuilding of destroyed infrastructure and industry.

It should be noted that such an organization should become the main driver of Ukraine’s reconstruction. However, this should not rule out the possibility of parallel bilateral cooperation between Ukraine and its partners. Simultaneously, such cooperation should coincide with the goals of the Organization and not create any risks that could slow down Ukraine’s Euro-Atlantic integration.

The views expressed are the author’s and not necessarily those of New Eastern Europe.

Andrii Vdovychenko is an emerging expert in international security. He is pursuing a Master’s in International Security and Development and holds a Bachelor’s from Jagiellonian University. His research focuses on emerging technologies and strategic studies.

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reconstruction, Russian invasion of Ukraine, Ukraine, Ukraine recovery, Ukraine-West relations