The World Bank and Ukraine: Laying the Groundwork for Reconstruction in the Midst of War

Key Highlights

• $38 billion in financing commitments and pledges from the World Bank and partners have been mobilized for Ukraine since February 2022, of which $29 billion had been disbursed by November 2023.
• Government continues to perform core functions.
• 98.5 percent of pensions paid on time.
• Over 90 percent of government employees paid on time. 
• Estimated 13 million beneficiaries from the Public Expenditures for Administrative Capacity Endurance (PEACE) Project.
• 2.4 million routine vaccines distributed to children under seven. 
• 28 million COVID-19 vaccines procured with project funding.

Challenge: Regional Devastation, Global Repercussions

Since Russia’s invasion in February 2022, Ukraine has experienced horrific destruction and suffering. The human costs of the conflict are staggering – tens of thousands of people have been killed or wounded, with 8.1 million displaced across European countries, and 5.4 million internally displaced (UNHCR, Feb 2023). The proportion of Ukrainians living in poverty increased from 5.5 percent to 24.1 percent in 2022, pushing an additional 7.1 million people into poverty and setting back 15 years of progress. Gross Domestic Product (GDP) is likely to grow by 3.5% this year after a contraction of 29.1% in 2022, thanks to more stable electricity supply, increased government spending, ongoing donor support, a better harvest, and the rerouting of some exports through the country’s western borders.

Under these circumstances it’s critical to keep government running and provide essential services, since without them, the costs of economic recovery and reconstruction would be even higher. Ukraine needs urgent investment for pressing repairs to energy infrastructure, roads, bridges, housing, schools, and clinics, to ensure that services can be delivered. As it stands, the cost of Ukraine’s reconstruction and recovery as estimated in a February 2023 Rapid Damage and Needs Assessment (RDNA2) at $411 billion over the next 10 years. For 2023 alone, Ukraine is facing an additional funding gap of $11 billion for critical economic and capital expenditures, notably in such sectors as transport, housing, energy, social protection and livelihoods, and agriculture. Globally, the war has contributed to volatile and elevated commodity and energy prices, exacerbating food shortages, driving inflation in many regions, and threatening development gains in countries which have no other involvement in the conflict.  

Approach: Meeting Immediate Needs, Planning for Resilient Reconstruction

The World Bank has mobilized some $38 billion in emergency financing, commitments, and pledges, which includes grants, guarantees, and linked parallel financing from the US, UK, Canada, European countries, and Japan (OPCS portfolio analysis data). By November 2023, more than $29 billion had been disbursed through World Bank projects.  Of this, $2.2 billion is unguaranteed IBRD/IDA financing, with another $1.6 billion of IBRD financing guaranteed by Ukraine’s development partners, and the remainder through grants from bilateral partners. 

More than $20 billion has been channeled through the Public Expenditures for Administrative Capacity Endurance (PEACE) Project, which is helping to provide wages for government and school employees, pensions for the elderly, payments for health services and social programs for the vulnerable. FY24 commitments of IBRD and grants are expected to amount to approximately $11 billion across new and existing operations.

The World Bank has established the Ukraine, Relief, Recovery, Reconstruction and Reform Trust Fund (URTF), a fast-working and flexible facility that is helping the Government of Ukraine to sustain its administrative capacity, deliver services and conduct relief efforts, and plan and implement Ukraine’s recovery, reconstruction, and reform agenda. The URTF is financing projects with a focus on repairing damaged infrastructure, restoring public services, and sustaining economic activities, in the areas of healthcare, energy, logistics, agriculture, and housing.

Finally, a Development Policy Loan (DPL) was approved by the Board on June 29, designed to address the needs of the newly poor and displaced by providing relief to households; to enhance the transparency and accountability of public resources expenditures; and to help markets function better during and after the war.

Results: Targeted Support for Key Sectors

Damage to Ukraine’s energy sector during the war is estimated at $12 billion, with more than 50 percent of Ukraine’s power infrastructure damaged in the winter of 2022-23. The Restoration Project of Winterization and Energy Resources (RePoWER) is a $500 million Emergency Framework project with initial funding of $200 million from URTF that will support emergency repairs to the electricity transmission and heating infrastructure by urgently procuring critical equipment. 

Since the start of the war, Ukraine’s power utility Ukrenergo has faced serious financial issues due to low demand and low collection rates, accumulating financial deficits of $50–100 million per month. Electricity exports, notably to the European Network of Transmission System Operators for Electricity (ENTSO-E) is a promising means of improving the sector’s financial performance. However, exports were not allowed due to issues of grid stability under the World Bank’s ongoing Second Power Transmission Project; in the midst of the war, Ukrenergo concluded a contract to install STATic synchronous COMpensator (STATCOM) technology, identified as a critical measure to allow electricity exports from Ukraine to ENTSO-E, worth revenues of an estimated $80 million per month.

With the support of the World Bank, Ukraine has ensured the continuity of governance and administration during the war. The PEACE Project helps to meet financing needs for the salaries of civil servants, teachers, and first responders, payments for health services as well as to finance social assistance programs. Overall, the number of the project beneficiaries is estimated to be over 13 million people, including 10 million pensioners, 500,000 employees of educational institutions, 145,000 government employees, 56,000 first responders, and over 3 million social assistance beneficiaries. With the support of the project, 100 percent of Government continues to exercise its core functions, 98 percent of pensions were paid on time, and over 90 percent of government employees were paid on time. The PEACE Project combines loans and grants, currently totaling more than $23 billion, from the World Bank and other development partners. As of May 2023, disbursements had reached $16.5 billion.

Ukraine’s neighbor Moldova is hosting the highest number of displaced persons per capita in Europe, as hundreds of thousands of people escaping the war Ukraine find shelter there. The World Bank, like many other development partners, has responded swiftly to the crisis by providing a budget support loan to the government, in the amount of $150 million, and mobilized grant financing of $9.24 million from the Global Concessional Financing Facility to supplement the loan. This financing has helped to support refugees and households, and to build resilience to future shocks. Subsequently, the World Bank has established a Multi Donor Trust Fund to raise grant resources for Moldova, and in December 2022 a grant financing package in the amount of $43.76 million was approved. In May 2023 the World Bank Board approved a Crisis Facility for the International Development Association (IDA) to respond to food insecurity, economic shocks, impacts of climate change, and health emergencies in the world’s poorest countries. It will also complement ongoing efforts by partners to finance reconstruction and recovery in Ukraine, and will help address the continuing impacts of the invasion on both Ukraine and Moldova.

With the support of the World Bank and other partners, and in the face of terrible challenges, Ukraine’s healthcare sector has remained surprisingly robust. In December 2022, the Health Enhancement and Life-Saving (HEAL Ukraine) Project, which is the first project to focus on recovery, was approved. It funds essential primary care services, addresses new mental health and rehabilitation needs, provides affordable medicines, and repairs damaged clinics and hospitals. The HEAL Project was appraised for $500 million and approved by the Board in December 2022, with over $110 million in financing ($107 million IBRD loan Guaranteed by Spain and a $10 million grant from the Global Financing Facility). This project is already achieving results:

• To date, more than 2.4 million vaccines have been distributed to children under seven; some additional 500,000 people are receiving medicines or medical products subsidized through the Affordable Medicines Program.
• More than 3,500 health care providers have registered for training to care for victims of gender-based violence; more than 2,300 have completed training.
• People are now able to seek critical mental health care, with some 11,000 Ukrainians accessing services under the project, and a target of 500,000.  Nearly 70,000 people have accessed critical rehabilitation services for both mental and physical trauma.

Data Highlights

One World Bank Group in Action: An Effective Aid Platform for Donors

IBRD, IFC, and MIGA have jointly engaged in supporting Ukraine’s efforts to rebuild through the Multi-Donor Resources for Infrastructure and Institutions (MRII).  MRII takes a phased and multi-pronged approach to mobilize financing, through guarantees, co- and-parallel financing, and other financial instruments to help Ukraine. MIGA and IFC joined forces in June 2023 to support the resilience of Ukraine’s private sector in the face of Russia’s invasion by unlocking trade into Ukraine. This was achieved in partnership with IFC’s Global Trade Finance Program (GTFP). Ongoing dialogues among the Bank Group institutions have led to new projects in the pipeline in which both IFC and MIGA are expected to play a key role going forward.

Partnerships: A Multilateral Template for Recovery

Even as conflict is ongoing, the World Bank is working with partners to establish the necessities of peacetime. In March 2023, The Government of Ukraine, the World Bank Group, the European Commission, and the United Nations released a Rapid Damage and Needs Assessment, the RDNA2. RDNA2 was conducted in coordination with humanitarian and development partners, academia, civil society organizations, and the private sector, and provides a comprehensive evaluation of war impacts across twenty different sectors, as well as the financing needed to mitigate these impacts – $14 billion in priority reconstruction and recovery investments in 2023 alone.

"Conducting the second Rapid Damage and Needs Assessment is an important element in Ukraine's reconstruction strategy,” says Prime Minister of Ukraine Denys Shmyhal. “We are grateful to the World Bank for an up-to-date and thorough analysis, which will become an important tool for us and our partners in the implementation of recovery projects - recovery that has already begun.” 

Looking Ahead: A Vision for Sustainable Peacetime Growth

In the near term, three further framework projects have been approved. The Repairing Essential Logistics and Network Connectivity Project (RELINC) is helping to repair damaged critical road and rail networks to reconnect communities and improve westward transport linkages to mitigate impacts of Black Sea disruption. The Restoration Project of Winterization and Energy Resources (Re-PoWER Ukraine) will help restore essential energy services by financing emergency repairs to the power transmission and heating infrastructure. And in August 2023, the Bank approved the Housing Repair for People’s Empowerment (HOPE) Project, that will help more than 100,000 families in Ukraine make urgent repairs to homes damaged by Russia's invasion. Future projects are scheduled to be presented to the World Bank Board to support the agriculture sector and to strengthen Ukraine’s social protection system.

In the months immediately following cease-fire or peace, Ukraine will need to address some of the disruptions of the wartime economy, focusing actions on inflation and macro-financial stability challenges; the ability of private businesses to resume normal functioning, including through access to credit; strengthening fiduciary processes to manage large inflows of resources; reconnecting people to public social services; and restoring critical infrastructure. In the medium term, Ukraine will have an opportunity to build a more productive, sustainable, and inclusive society, reviving macro-financial stability, stimulating the growth of the private sector, rebuilding public social services, building sustainable infrastructure, and creating economic institutions that enable a dynamic economy.

Finally, the Bank will continue to shoulder its share of the development burden placed on countries around the world impacted by food insecurity, inflation, and supply chain issues resulting from the war.  As an institution founded in the aftermath of global conflict, the World Bank is ideally positioned to partner with Ukraine in rebuilding a more resilient economy after the current war, both immediately and in the long term.