Ukraine Overview: Development news, research, data

Overview

Ukraine In Numbers

GDP projected to grow by 0.5% in 2023 after contracting about 30% in 2022.
7.1 million additional Ukrainians are estimated to live in poverty.
15-year setback in poverty reduction goals.
Ukraine needs $11 billion for repairs and essential services in CY23.

Now in its second year, Russia’s invasion of Ukraine is a tragedy with far-reaching human and economic impacts. Ukraine’s operating, recovery, and reconstruction needs are staggering. To support the continuation of essential government services over the last year, the World Bank Group has mobilized more than $38 billion in emergency financing, including commitments and pledges, which includes grants, guarantees, and linked parallel financing from the US, UK, European countries, and Japan. This includes $3.4 billion on the World Bank’s own balance sheet, with another $6.5 billion on the Bank balance sheet planned over the next 12 months.

As of April 2, 2023, more than $20 billion has been disbursed through World Bank projects and trust funds, as well as additional funds through parallel disbursements. About half of all the economic assistance for Ukraine has been mobilized through the World Bank. This support has reached 13 million Ukrainians, and is helping to provide wages for hospital workers, government and school employees, pensions for the elderly, salaries for public servants, and social programs for the vulnerable.

Providing adequate budget support to keep the government running and to provide minimal essential services is critical, because otherwise it will become much more expensive to rebuild and recover the economy and more people could fall into poverty.

Recovery (emergency repairs) must run simultaneously with continued support for essential services, and this is a big part of our current focus. In addition to budget support,

Ukraine needs urgent investment for pressing repairs – to energy infrastructure, roads, bridges, housing, schools, and clinics – to ensure that services can be delivered.

Ukraine’s Needs

The updated Rapid Damage and Needs Assessment (RDNA2), released in March, estimates that the current cost of reconstruction and recovery stands at $411b over the next 10 years and combines both needs for public and private funds. In 2023 alone, Ukraine will need faces a funding gap of $11b for this year. This includes $6 billion in unfunded budget needs, $3.3 billion in financing for state-owned enterprises (SOEs), and $1.5 billion to mobilize the private sector.

The highest estimated needs are in transport, housing, energy, social protection and livelihoods, explosive hazard management, and agriculture.

Ukraine Needs in Numbers

22% transport
17 % housing
11% energy
10% social protection and livelihoods
9% explosive hazard management
7% agriculture

The RDNA2 covers the one year since Russia’s invasion, from Feb 2022 to Feb 2023, and evaluates war impacts across 20 sectors. This analysis is helping the Government and donors to identify the priorities for recovery while continuing to support the provision of core services like health, education and social protection.

World Bank Group Financing

The World Bank Group is leveraging its broad range of financing instruments to facilitate the rapid disbursement of funds to meet Ukraine’s urgent needs is mobilizing financing and donor partner support. The Bank have expanded existing projects, established multi-donor trust funds, and channeled guarantees and parallel financing from donor countries.

The World Bank Group is uniquely positioned to provide a fast and flexible platform for donor contributions with corresponding supervision to verify that money goes where it is intended.

PEACE

Since the start of Russia’s invasion, a large part of support mobilized through the World Bank has been through the project Public Expenditures for Administrative Capacity Enhancement (PEACE) to help the Government of Ukraine meet urgent needs, including the provision of core public services such as health, education, and social protection. This support has reached 13 million Ukrainians, and is helping to provide wages for hospital workers, government and school employees, pensions for the elderly, salaries for public servants, and social programs for the vulnerable. The Bank has deployed a range of mechanisms, including expenditure verification, beneficiary complaint monitoring, procedure reviews, and surveys, to ensure that money goes where it is intended.

Framework Projects

The World Bank has introduced Framework Projects to support recovery and build capacity for reconstruction in health, energy and transport sectors. These are Bank-supported emergency operations that mobilize partner resources through an innovative and flexible design that allows funds to be disbursed quickly, can be scaled as necessary, and can absorb additional financing as it becomes available. They include appropriate fiduciary, environmental and social safeguards. IBRD funding for these projects is secured thanks to the bilateral guarantees provided by development partners.

MRII

The URTF is part of the World Bank Group’s Multi-Donor Resources for Institutions and Infrastructure (MRII - МРІЇ) for Ukraine Facility to support Ukraine through a coordinated WBG approach among the World Bank, IFC, and MIGA. The MRII takes a phased and multi-pronged approach to mobilizing financing and coordinating sources of support through guarantees, co- and-parallel financing, and other financial instruments. All MRII facilities allow donors to support Ukraine in addressing its immediate needs to sustain key public services, the private sector, and wider recovery and reconstruction needs identified in the RDNA2.

URTF

To swiftly mobilize efforts for reconstruction, the Bank has established the Ukraine Relief, Recovery, Reconstruction and Reform Trust Fund (URTF), a multi-donor fund to channel grant contributions from donor partners. The URTF’s objectives are to help sustain the country’s administrative and service delivery capacity, and conduct relief efforts, as well as to support the planning and implementation of Ukraine’s recovery, resilient reconstruction, and reform agenda.

The URTF supports the Bank’s Framework Projects and ensures that Ukrainian authorities can quickly and effectively utilize these critical investments and leverage the multiple sources of financing efficiently and at scale. Contributors to the URTF include Austria, Canada, Iceland, Japan, Lithuania, the Netherlands, Norway, Sweden, Switzerland.

IFC

IFC is providing working capital to businesses and helping to keep Ukraine’s trade lines open. IFC has made investments totaling $95m, including injection of capital, to help create jobs, accelerate the growth of Ukraine's technology sector and contribute to food security through sourcing and exporting grains from Ukraine. IFC and the EU are also channeling €50m in grants to provide temporary accommodations for internally displaced people and to restore war-damaged residential buildings. In December, IFC announced a $2b package to support Ukraine’s private sector focusing on agribusiness and on the provision of essential goods and services. IFC is also supporting the government to develop an approach to attract private investment and know-how for the reconstruction.

MIGA

MIGA has issued more than $116m in guarantees to Ukraine since the war began. To address the shortage of insurance capacity for war risk, MIGA has established a trust fund that has been seed-funded by Japan. This and future donor contributions, combined with MIGA’s own capital, could help mobilize public and private reinsurance in support of projects in the energy, agribusiness, manufacturing, and logistics sectors. MIGA also is partnering with EBRD to support short-term trade finance guarantees for Ukraine to serve humanitarian needs and help keep industries like agriculture going while providing critical imports needed for production.

Partners

Donor governments: The United States, Austria, Belgium, Denmark, Finland, Germany, Italy, Japan, Latvia, Lithuania, Iceland, Netherlands, Norway, Sweden, Switzerland, Spain, and United Kingdom.

IFIs: EIB, EBRD, EC, IMF, CEB

Learn more: World Bank Financing Support to Ukraine

Recent Economic Developments

GDP declined by 29.2% in 2022. The contraction was less than expected as the UN-brokered grain deal and the return of nearly 4 million migrants boosted economic activity in Q3. However, attacks on the electricity infrastructure caused disruptions and a 31.4 YoY contraction in Q4.

Inflation stood at 26.6% at end-2022. NBU intervened in the currency market to establish an exchange rate peg and mopped up domestic liquidity to control demand, preventing further inflation growth.

Ukraine’s current account surplus was 5.7% of GDP in 2022, with grant inflows compensating for a growing trade deficit that reached 16% of GDP. Annual exports declined by 30%, while imports contracted by only 4%.

Public finances remain under pressure. The consolidated budget deficit excluding grants amounted to 26.5% of GDP in 2022. Tax revenue declined by a nominal 8 percent in nominal terms (30% in real terms) as indirect taxes suffered contractions. Expenditure grew by 65%, with war-related spending and essential public and social services prioritized. By contrast, capital expenditure declined by 37%. The deficit was financed through international assistance and monetization by NBU.

Poverty increased from 5.5% to 24.2% in 2022, pushing 7.1 million more people into poverty and retracting 15 years of progress.

Economic Outlook

Despite a localization of active combat, Ukraine’s economic outlook remains highly uncertain and is dependent on the duration of the war. The projections assume a continuation of economic activity at the level of 4Q22 into the medium term, adjusting for seasonal effects and accounting for recent improvements in the energy supply. GDP is expected to grow by only 0.5% in 2023.

The current account is expected to register a 4.5% GDP deficit in 2023 as a widening trade deficit offsets expected secondary income from international grants of around US$10bn. Exports are estimated to remain low, due to lower agricultural output and persistent logistics bottlenecks. By contrast, imports are expected to increase by a nominal 20% YoY, driven by strengthening domestic demand and continued needs for the import of energy related goods.

Total fiscal needs are estimated to exceed US$41bn in 2023. In the near term, maintaining the stable functioning of the war economy is critical. This will involve identifying opportunities to finance the elevated fiscal deficit - driven by the need to ensure defense and social expenditure while tax collection is limited - and domestic debt service.