Ukraine Overview: Development news, research, data

Overview

Ukraine Remains Resilient

As Ukraine enters a third winter of war, Russia’s invasion continues to cause staggering losses to people and the economy.

Poverty in Ukraine has increased by at least 1.8 million people to reach 9 million since the start of the war.

Substantial infrastructure damage and extensive electricity disruptions are likely to slow economic growth to 3.2% in 2024 and 2% in 2025.

While many are suffering, the government and the people of Ukraine continue to show remarkable resilience in the face of extensive devastation.

World Bank Group, donor, and partner support is helping the government to maintain public services. The Ukrainian people continue to receive their pension, doctors and teachers are able to collect their salaries, hospitals remain open, and businesses are running.

Ukraine’s private sector has demonstrated remarkable resilience yet faces considerable challenges as it navigates the ongoing conflict and its economic aftermath. While exports have resumed, financial fragility persists, particularly for small businesses.

Ukraine’s Needs

Ukraine faces immense financial needs in the coming years and private sector investment will be critical. The country will need at least $486 billion over the next decade to repair and rebuild, according to our Rapid Damage and Needs Assessment (RDNA3) released in February 2024. The highest estimated needs are in housing (17%), transport (15%), commerce and industry (14%), agriculture (12%), energy (10%), social protection and livelihoods (9%), and explosive hazard management (7%). With timely reforms to improve the investment environment, private sector could cover around one-third of reconstruction needs, as well as $280 billion in opportunities in other sectors.

Private investment potential is already substantial in agriculture, commerce, industry, banking, and housing. Policy reforms and deeper integration with the EU could boost private sector participation in the infrastructure sectors and pave the way for green and resilient reconstruction.

Private sector investment and engagement are key to Ukraine’s strong recovery and reconstruction efforts. Ukraine’s small and medium-sized enterprises, including mid-size companies, make up the lion’s share of Ukraine’s private sector and need support to help the economy stay afloat and Ukrainians to remain employed.

Last Updated: Oct 29, 2024

Donor Support

As of October 2024, the World Bank Group has mobilized more than $50 billion – 95% from donors – to be channeled through Bank projects, with most of this money disbursed to sustain public services, repair infrastructure, and support agriculture.

These commitments and pledges leverage innovative instruments, such as IBRD and IDA loans, IBRD loans guaranteed by partners, donor grants and equity, IFC blended finance and MIGA guarantees.

The World Bank Group’s Role

The World Bank Group is uniquely positions to help rebuild Ukraine as we bring strong oversight practices and expertise in reconstruction, particularly in agriculture, energy, infrastructure/transport and social sectors, as well as global experience in supporting development-oriented reforms.

We have expanded existing projects, established multi-donor trust funds, and channeled guarantees and parallel financing from donor countries.  We routinely monitor our Ukraine portfolio for evidence of fraud and corruption and have robust mechanisms in place to swiftly deal with any reports of irregularities.

We primarily work in areas where other organizations are not present, such as in Ukraine’s social sectors, including health, social protection, and education. We collaborate with bilateral and other multilateral development banks including the IMF and EU (on reforms), EBRD and EIB (on investment). We are harmonizing procurement practices in Ukraine with other MDBs.

The World Bank Group (IBRD, IFC, and MIGA) is working with the Ukrainian government and partners to identify opportunities for private financing of Ukraine’s reconstruction. Reforms that prepare Ukraine to rebuild and improve the investment climate are critical. The government has asked the World Bank Group for advice on reforms and investments to prepare the country for EU accession (many of which have been included in the “Ukraine Plan” with the EU).

World Bank

PEACE. Since the start of Russia’s invasion, donor support has been deployed through the World Bank’s project Public Expenditures for Administrative Capacity Enhancement (PEACE) to help the government of Ukraine meet urgent needs and provide core public services. PEACE is widely viewed as having helped the government survive the war by providing adequate budget support and sustaining its capacity to deliver essential public services.

PEACE support is reaching: 10 million “pensioners” (covering those in old-age poverty or who are vulnerable) and pay salaries to 500,000 education employees, 145,000 government employees, and 56,000 first responders. It is keeping more than 12,000 schools open.

This support has reached 15 million Ukrainians and is helping to provide wages for government and school employees, pensions for the elderly, salaries for public servants, and social programs for the vulnerable.  To ensure money goes where it is intended, the World Bank has deployed a range of mechanisms designed to monitor service delivery and check for fraud and corruption.

The World Bank also introduced framework projects to respond to priority needs, support recovery and build capacity for reconstruction in health, energy, transport, housing, agriculture and education. These emergency operations 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 is secured thanks to the bilateral guarantees provided by development partners.

3.8 million doses of childhood vaccinations.
2.3 million receiving primary health care.
65,000 families receiving compensation to make emergency repairs to their homes.

The Bank is also supporting development policy and investment operations to needed to strengthen the country’s economic policy framework and enhance its macro-financial stability as well as provide urgent relief to households, support reforms of public resources expenditures and help markets function better.

IFC

IFC launched a $2 billion Economic Resilience Action program to support Ukraine's private sector during Russia’s invasion. Since February 2022, IFC invested almost $2 billion including $530 million mobilized to bolster Ukrainian agriculture, financial, technology and telecoms sectors, address energy crisis, help implement urgent repairs in the residential sector and support municipalities hosting IDPs. This includes $547 million in trade finance guarantees to keep key inputs coming and continue grain exports, $465 million to agrifood companies and $70 million to the technology sector, $360 million to banks to reach SMEs, $217 million to telecom sector. In addition to financial support, IFC’s program includes analytical work, advisory services, and pre-investment projects to enable private investment in Ukraine’s reconstruction.

Addressing the energy crisis, IFC is working on near-term opportunities to help spur alternative business models in the current legislative environment and preparing for the scale-up needed in the medium term, subject to the adoption of key reforms, and is providing risk-sharing facilities and advisory services to partner banks to unlock new financing for distributed clean energy. This is expected to unlock €120 million in commercial loans for distributed clean energy in the short-term. IFC has also provided trade finance to enable the import of energy-efficient food processing equipment, and import of emergency mobile gas turbines.

MIGA

Since the start of the invasion, MIGA has issued $227 million in 6 new guarantees using $48.3 million in donor funds, which implies that $1 of donor funding supports $4.7 in guarantees in Ukraine. MIGA also established the SURE TF to help deploy a two-fold strategy in Ukraine: (a)
enable private investment by providing guarantees (political risk insurance (PRI) and credit enhancement) to investors and lenders; (b) ensure that projects are implemented in accordance with global best practices on meeting integrity, environmental, social, and climate standards.

Amidst limited availability of private reinsurance, SURE TF enables MIGA’s guarantee issuance in Ukraine by sharing up to 75% of the risk. In the immediate term, MIGA is providing guarantees to support trade in essential goods, continued bank lending to firms including SMEs, as well real sector projects which have clear demonstration effects. Once peace returns, MIGA expects to use the reinsurance market to provide PRI guarantees for real sector projects at scale. The SURE’s fund size as of October 2024, which apart from contributions also accounts for administrative fees, investment income, and SURE TF’s share of premium income, was $114.12 million.

URTF

To swiftly mobilize efforts for reconstruction, the World 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, 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 World Bank’s Framework Projects and ensures that the Ukrainian authorities can quickly and effectively utilize these critical investments and leverage the multiple sources of financing efficiently and at scale.

Partners

Donor governments: The United States, Austria, Belgium, Canada, Denmark, Finland, Germany, Italy, Japan, Latvia, Lithuania, Iceland, Indonesia, Ireland, the Netherlands, Norway, the Republic of Korea, Sweden, Switzerland, Spain, and the United Kingdom.

IFIs: EIB, EBRD, EC, IMF, CEB

Last Updated: Oct 29, 2024

Recent Economic Developments

More reliable electricity, an exceptional harvest and steadier receipt of external assistance have allowed for the first GDP expansion in Ukraine since February 2022, with year-on-year growth of 19.5% and 9.3% in Q2 and Q3 of 2023, respectively. Yearly growth for 2023 was 5.3%.

Inflation has declined from 26.6% at end-2022 to only 4.3% in February 2024, with a restrictive monetary policy stance and conducive food supply contributing to this reduction. In October 2023, the National Bank of Ukraine (NBU) transitioned from a pegged to a slightly more flexible exchange rate regime, which has resulted in modest currency depreciation. Banks have remained profitable and stable, but risks are prevalent.

After recording a surplus in 2022, Ukraine’s current account turned into $9.6 billion deficit in 2023. This was driven by a widening trade deficit and the replacement of grant receipts by loans. Reserves were aided by external assistance and stood at $37.1 billion on March 1, 2024. Higher needs for defense expenditure necessitated a significant revision of the 2023 budget and an expansion of the fiscal deficit, which reached an estimated 27% of GDP when excluding grants. Ukraine met its financing needs through domestic bank borrowing and external assistance but has not resorted to monetization in 2023.

Economic Outlook

Ukraine’s economic outlook is conditional on the timing and quantity of external assistance receipts and the assumed duration of Russia’s invasion. Under an indicative scenario that assumes active hostilities will continue throughout 2024, GDP is expected to expand modestly by 3.2% this year.

Starting from 2025, Ukraine’s economic growth would accelerate to 6.5% under the baseline assumption as export growth resumes, and reconstruction investment supports the demand side. Private consumption growth is projected to remain modest due to contractionary monetary policy needed to reign in post-war inflation. Inflation is expected to pick up in 2024 as one-off factors subside but is projected to decrease from 2025.

The current account is expected to widen to 7.8% of GDP deficit in 2024 and remain elevated under the baseline assumption, as a reduction in grants outweighs a gradually decreasing trade deficit from 2025 onwards. The fiscal deficit (excluding grants) is projected at 20.4% of GDP in 2024 before gradually declining to 6.5% by 2026, and is projected to be financed by external assistance, with an increasing contribution from domestic sources over time.

Public and publicly guaranteed debt is projected to stabilize around 98% of GDP in the medium-term. This scenario is subject to significant downside risks due to the vulnerability of Ukraine’s economic trajectory to external financing shortfalls and the possible prolongation of the active hostilities beyond 2024. Should downside risks materialize, a more stringent macroeconomic adjustment could become necessary.

Last Updated: Apr 15, 2024