Estimates speaking of figures ranging from 220 to 540 billion. But in addition to the money, reforms will be decisive
The bloodiest phase of the war has yet to begin. Civilians flee, only last week more than 200 thousand evacuated Donetsk (via Kramatorsk); the armies instead move in the opposite direction. They converge on the Donbass. The Russians want to launch a brutal and massive attack. Ukrainian Foreign Minister Dmytro Kuleba told NATO leaders to expect large-scale maneuvers, with thousands of tanks, planes and armored vehicles. “He will remember the Second World War”. How long the fighting will last is difficult to predict. The only certainty is the damage: more death and destruction.
The war decided by Vladimir Putin has so far killed thousands of civilians and displaced millions; it devastated homes, hospitals, infrastructure such as bridges and ports, power plants and factories. Even if the war is not over, and it is unknown when it will end, economists and government officials are trying to get an idea of the cost of reconstruction and how to manage the eventual recovery. There is no shortage of success stories from the past. Italy and Germany, which after the ruin of the Second World War, got up and made a decisive contribution to European economic growth.
A London-based network of economists, the Center for Economic Policy Research (CEPR), has hypothesized a cost of reconstruction ranging from 220 to 540 billion euros – and their calculation is analogous to a previous estimate made by the Ukrainian government. But according to the CEPR, along with the funding there must be a bold reform plan, which will prove equally important. Despite the push for renewal after the Euromaidan revolution, Ukraine is still largely held back by oligarchic interests. Thus, the post-war period could be an opportunity to bring out a more open and dynamic economy.
An enormous challenge, also because the GDP of Ukraine – warns the World Bank – should fall by 45% this year. According to the government, at least 30% of companies have stopped producing and nearly 50% have reduced their activities. Then there is the public finance alarm. The state is spending much more than it collects: a deficit of 2.7 billion euros is estimated in March, which will grow to 5 and 7 billion in April and May. Western aid so far has been around $ 7 billion. They have kept the budget afloat, but they are no longer enough. Yesterday, Finance Minister Sergii Marchenko, in an interview with the Financial Times, said “we are in the worst possible condition. Help us if you want us to keep fighting ”. He was asking for an immediate line of credit of tens of billions of dollars to make up the fiscal deficit caused by the Russian aggression.
Experts say mine clearance will come at a significant cost. Even before this war began, the Ukrainian government had budgeted for an expenditure of 650 million euros to clean up the Donbass – the region disputed with the pro-Russian separatists and invaded by the Moscow army in 2014. But we need to mine. Past experiences show that it is decisive: in Mozambique it took more than twenty years, but the premium (in addition to the lives saved) was an additional 20 percent GDP growth.
Who will be responsible for the financial effort of reconstruction? The Economist is quite direct: Western governments will have to intervene, then international organizations and private investors. There is also the very right idea of using frozen Russian funds, but there are legal obstacles, and to be a concrete proposal it should be included in the peace accords. How to allocate money is another challenge: we need to create competitive and transparent mechanisms, which is not easy in an economy where there are large oligarchic interests.
Then it is clear that long-term growth passes from greater integration with the European Union. Trade with the EU had increased even before the war, so much so that it exceeded those with the Russian market. Ukraine will have to continue on this path. An inspiration is the Polish case. In the 15 years since joining the European Union, per capita income has risen by more than 80 percent. These obvious advantages could give further impetus to reforms, a difficult process given that it is about shaking entrenched institutions. Will need iron will. And Russia will get in the way. You will try to pollute the peace and block change.
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