Immediate recovery funding is key to Ukraine's security

Ukraine needs international finance to support its recovery now, because boosting internal resilience is vital to ensuring a successful outcome of the war.

Expert comment
3 minute READ

The Ukraine Recovery Conference in Lugano was an admirable gathering of government representatives, Western donors, the private sector, and civil society, with discussions focusing on a new Ukrainian National Recovery Plan. But ultimately it has produced little of immediate relevance to the demands of wartime, and provided no solutions to support the survival of the Ukrainian state in the short-term.

The Ukrainian government’s recovery scenario assumes the war will last until the end of 2022 – that is a big assumption as Russia shows no sign of giving up. Vladimir Putin may have changed tactics to focus on Donbas, but his overall strategic objective remains unchanged – to ensure Ukraine capitulates and is crippled militarily, socially, and economically.

Economically, the question is who will break first. According to the World Bank, sanctions have created an 11 per cent contraction in Russia and it has defaulted on its debt. But Ukraine’s economy may collapse by 45 per cent because the key pillars of its economy have been almost completely wrecked. Export revenues shrunk from $6 billion in November 2021 to just more than $2 billion in March 2022, and budget revenues decreased by almost 30 per cent.

Despite the heavy economic and human toll, the vast majority of Ukrainians are determined to push for victory, and are clear about what that means

Putin is targeting civilian infrastructure to make life unbearable in cities and causing a refugee crisis, with damage to physical infrastructure estimated at $95.5 billion and at least 779 medical institutions, 1,371 educational institutions, 690 kindergartens, and 28 oil depots damaged, destroyed, or seized.

But despite the heavy economic and human toll, the vast majority of Ukrainians are determined to push for victory, and are clear about what that means – defeating and expelling Russian troops to the state border of 2014, assisting an insurgency inside Russia to liberate the constituent nations from Putin’s regime, and for war criminals to be brought to justice.

Ukraine also wants Russia to pay for rebuilding with both state and oligarch assets requisitioned to pay for reconstruction. New powers introduced by Canada suggest a legal framework can be designed to mobilize these resources, but it will take time.

Will the West stay the course?

These aims are undoubtedly ambitious and maximalist, but they reflect Ukrainian politicians’ and society’s resolve. Confidence among Ukrainians that Russia will be repelled reached 93 per cent in June but the main concern is whether international support will maintain its resolve.

High-level policy declarations that the European Union (EU) will ‘stand up with Ukraine for as long as it takes and will not rest until Kyiv prevails’ must be backed by action, which means quickly providing around $60 billion – excluding military and security assistance – by the end of 2022. Budget support has started trickling through, but the pace is too slow. Out of €12.3 billion committed by the EU, only €2 billion has been disbursed.

Finance for immediate recovery needs is even more problematic as the Lugano participants are still discussing how to set up a new facility. With the new school year and winter approaching, cities must build bomb shelters, repair and increase housing stock, provide emergency funding to SMEs, build new transport connections to export via the EU, and stockpile materials to prepare for future damage to critical infrastructure, which is inevitable.

The fastest way to disburse funding is via existing institutions with proper oversight. In addition to direct budget support, there should be financing of the Ukrainian Energy Efficiency Fund, Fund for Regional Development, and the Ukrainian Cultural Fund, all of whose coffers have been empty since the start of the invasion.

Three principles of a resilient recovery

Funding aside, it is key that partners embed a resilient approach to the immediate recovery effort. Chatham House research shows resilience in Ukraine is mainly founded on decentralized governance, the strong agency of civil society, and an agile and committed private sector. It is important to remember horizontal social links – rather than hierarchical centralized command – are the main organizing feature of social culture in Ukraine.

Several issues currently stand in the way of exploiting these strengths, the first being the impact of martial law and a partial return to centralized rule. Top-down governance via regional military administrations and the drastic fall in local budget revenues make elected mayors dependent on the central authorities.

Centralization is justified in a time of war but it also allows President Zelenskyy to undercut the political competition. It is no secret that mayors who enjoy high trust and legitimacy are the most likely challengers in future battles for power. War inevitably boosts social mobility and brings a new generation of leadership to the fore.

If civic engagement is supported, it increases community cohesion, sustains personal resilience, and encourages people to stay in the country

In Lugano, mayors were largely absent so Kyiv should set politics aside and embed the EU’s principle of subsidiarity in the rebuilding process. Recovery decisions must be taken at the level that is as close as possible to citizens, and the question must constantly be asked as to whether action at the national level is justified or if there is relevant regional or local capacity. Restoring local sources of revenue is key.

Second, a framework for engaging non-state actors is lacking. Apart from stating a principle of democratic participation in the Lugano Declaration, the conference provided no answers and Zelenskyy’s team is known for its scepticism towards civil society.

When 70 per cent of citizens are volunteering to help with the war effort, NGOs and voluntary groups could channel that energy, contribute ideas, provide a social safety net, and deliver some services. After the events of 2014, the Building Ukraine Together network mobilized more than 6,000 young volunteers to rebuild houses and help IDPs. If civic engagement is supported, it increases community cohesion, sustains personal resilience, and encourages people to stay in the country.

Immediate recovery funding is key to Ukraine's security 2nd part

Finally, resilient systems are agile and adaptable – that is why the private sector is demanding more economic freedom, effective tax administration, and fair and competitive access to recovery funds. Companies want to be partners in the recovery and are already delivering an immense amount of humanitarian assistance, working to keep people in employment and adapting to the destruction of logistics infrastructure in an impressive way.

Public-private partnerships allow for the rapid, robust, and resourceful delivery of reconstruction aid, so the current friction between the private sector and the leadership of the National Recovery Council is counterproductive and undermines trust.

The rapid provision of finance for rebuilding by the West is as urgent for a Ukrainian victory as supplies of military materiel. The post-war rebuilding process will be a new chapter in the story of Ukraine’s recovery and so a grand vision and long-term plan are both essential. But financial intervention now is required to keep the Ukrainian economy afloat and cushion the population from the shocks of war.