The EBRD forecasts that $250 billion in investment is required just to restore the Ukrainian economy to its pre-war level

Only 29% of countries have reached pre-war GDP levels within a 5-year perspective post-war. The bank estimates that for Ukraine to be part of this favourable group, it must achieve an annual growth of 14%. Under such conditions, GDP will reach $225 billion at constant 2022 prices.

This information is reported by Danylo Hetmantsev, Chairman of the Committee of the Verkhovna Rada of Ukraine on Finance, Taxation and Customs Policy.

Taking into account the experience of countries with high rates of long-term economic growth, a key condition is a significant increase in the share of investments (gross fixed capital, GFC) in GDP. In fast-growing countries, this indicator was not less than 30%, on average – 35%. However, in Ukraine, before the start of the major war (in the period 2016-2021), the share of GFC averaged 16%, which is half less than the required norm, due to a low level of gross domestic savings (14.5% of GDP on average for 2016-2021) and limited capital inflow (portfolio and direct foreign investments, DFI).

Ukraine needs to attract net capital at approximately $50 billion per year (20% of GDP) over 5 years to achieve recovery. Between 2010-2021, the annual volumes of attracted funds were 3% of GDP for direct foreign investments (DFI) and 1.4% of GDP for portfolio investments. Institutions in Ukraine should be capable of effectively absorbing such a level of investment. Furthermore, reducing volumes of DFI is a significant challenge for countries recovering from war.

Under such conditions, the only source of closing the gap between domestic savings and the necessary investments is external funding. It entails significant support from official donors and attracting DFI, which should be converted into public and private investments, complementing each other. In addition to investments in energy-efficient industrial equipment, agricultural machinery, housing stock and infrastructure restoration, private investments will facilitate technology transfers, managerial expertise and cost reduction.

International assistance, in addition to funding, will also create the necessary conditions for implementing structural reforms. These reforms are important, as without their implementation, the country can be caught in the trap of bureaucratic apparatus, corruption and informal economy.

Background. Mind reported that an Ukrainian Investment Platform had been launched in Tokyo under the leadership of the EBRD.