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FINANCIAL RESOURCES OF THE POST-WAR
different economy on modern technological principles, the costs according to the Recovery Plan presented by Ukraine at a conference in Lugano [4; 10] will reach $750 billion for 10 post-war years.
Since the choice of one of these directions is decisive, on which both the volume of resources and the consequences of recovery depend, it is important to plan investment needs, coordinate the actions of the government, international organizations and stakeholders in order to direct resources in a reliable and responsible way. It is obvious, already at this stage, that domestic sources are not enough even for minimal recovery measures. Funds from the international community are provided or are planned to be provided through different mechanisms, which makes it difficult to understand their volume and possible directions of attraction.
As for domestic financial resources, in the short term, in particular for 2023, the revenues of the draft state budget are provided in the amount of UAH 1,330 billion, and expenses will amount to UAH 2,640 billion. In relation to the country's GDP, the budget deficit will reach 20% (the pre-war level did not exceed 3%). As in 2022, 43%
of the budget will be allocated to the army and security - UAH 1,141 billion, or 18.2%
of GDP; for education - UAH 555 million (21%), for the payment of pensions - UAH 272 billion (10%), liquidation fund - UAH 35.5 billion (1.3%).
Due to the huge budget deficit in 2023, the government plans to radically revise programs to support the economy: they plan to remove spending on the Support program (UAH 32.15 billion in 2022) and expand funding for concessional loans through the Entrepreneurship Development Fund, the 5- 7 -9% from UAH 9.3 billion to UAH 16 billion Conditionally funds for economic development include spending on grants for the creation and development of business (UAH 1.37 billion), the Fund for the Elimination of the Consequences of Armed Aggression (UAH 19.3 billion) and subsidies to the de-occupied regions (almost UAH 24 billion).Thus, the priorities of financial regulation of the economy under martial law are aimed at transferring the economy to serve the needs of the defense budget.There is no talk of direct support for economic sectors yet.Selective funding will be given to business initiatives, concessional lending programs and provision of partial compensation for losses from the occupation.
The annual budget deficit is expected to be covered by international funding from various sources, since Ukraine needs help to cover the state budget deficit next year of
$38 billion. Ukraine hopes that 2/3 of the funding will be provided by partners. In the long term, funds for financing reconstruction can be reimbursed to donors and creditors through reparations from the aggressor country [3; 4; 6].
As part of the 1st International Expert Conference on Recovery, Reconstruction and Modernization of Ukraine, held in Berlin, a $17 billion recovery plan for vital social (housing, hospitals, schools), transport and energy infrastructure was laid down.
within the framework of the Fund for the Reconstruction of Ukraine[6].
The European Business Association has a Committee for the Restoration of Ukraine. The European Commission sees three key points in the recovery and assistance to Ukraine: Ukraine must receive constant and constant support from partners for expenses - from urgent vital needs to long-term programs for recovery and
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reconstruction; an appropriate architecture of such assistance should be created to be as broad and inclusive as possible; Considering that Ukraine has received the status of an EU candidate country, the EU should support all efforts of Ukraine on its way to full membership [7].
The Committee carried out the development of White Paper (White Book) with proposals for the restoration of Ukraine; holding meetings with key state authorities, embassies, representative offices of international organizations in order to synchronize the vision of ways to restore Ukraine; analysis of information and preparation of expert materials on priority areas and ways of restoring Ukraine, development of the B2B direction, in particular, the search for potential partners both in Ukraine and abroad to establish new supply chains, restore damaged infrastructure, in particular social, and as well as housing and commercial real estate[5].
To raise funds, the Cabinet of Ministers initiates a mechanism for insuring war risks for foreign investment. As part of a pilot project, $30 million was allocated through the Multilateral Investment Guarantee Agency (MIGA) and the World Bank [11].
According to [4], the EU Economic and Financial Affairs Council (ECOFIN) stipulates that it is the Ukrainian authorities that should lead reconstruction efforts in close partnership with the European Union and other key partners and proposed the creation of an international coordination platform “Ukraine reconstruction platform”
(“ Ukraine Renewal Platform"). To restore Ukraine, it is planned to use the already existing programs (structural funds) of the EU and an additionally created special mechanism (tailor-made facility).
Also, the UN General Assembly adopted a Resolution on the recovery of reparations from the aggressor country in favor of Ukraine. The resolution recognizes the need to create, with the participation of Ukraine, an international mechanism of reparations to compensate for damage to Ukraine and recommends the creation of an international register of losses to document the claims and evidence of the damage suffered by the persons affected by the aggression. The aggressor country at the international level was obliged to pay reparations to Ukraine, which creates a legal basis for using the frozen assets of Russia for this. Ukraine, for its part, must resolve the issues of collecting, documenting and assessing the size of losses. This will make it possible to estimate how much funds are required for compensatory restoration [4].
Accordingly, in the official documents of the European Union, international organizations and expert proposals, the issue of financing restoration is inextricably linked with its institutional support, primarily with the creation of a financing mechanism. Functionally, such a structure should cover all important aspects of post-war reconstruction management, including raising funds to finance it. Therefore, Ukraine's efforts should first of all be directed to the formation of an institutional framework for recovery, which will include, in particular, a mechanism for raising funds to translate it into practice.
A very large volume of military destruction means a significant demand from the state and society for restoration in order to normalize the life of the population and restart the economy. Among the objects that are massively in need of restoration are
residential buildings, administrative, medical, educational and transport infrastructure, energy facilities and property of private enterprises, natural objects. All these objects have different forms of ownership, uneven degrees of damage, pre-war wear and tear and moral obsolete.
According to researchers [2], the main areas of restoration that require a significant part of budget financing are: restoration and modernization of physical infrastructure, in particular transport and energy; social rehabilitation of war victims and restoration of social institutions; repair and reconstruction of housing stock; restoration of the network of educational institutions and healthcare, optimized for new needs, continuation of reforms in these areas; restoration and modernization of industrial facilities; job creation; support for small and medium enterprises; restoration of damaged agricultural facilities, demining and land reclamation; expansion of production capacities and orders for the military-industrial complex.
To implement these tasks [4], Ukraine must: prepare specific and meaningful proposals for the formation of an institutional framework for recovery (Recovery Fund) of Ukraine for discussion with potential donor countries; identify one authorized representative to negotiate with the EU and other potential donor countries on the establishment and operation of a recovery fund; develop a methodology for creating a register of losses that should be compensated by Russia's reparations, coordinate it with donor countries, and begin the formation of such a register on a single methodological basis. According to [9], these areas are:
• social sectors: housing, education, health, social protection and livelihoods, culture and tourism;
• productive sectors: agriculture, irrigation and water resources, trade and industry, financial sector and banking;
• infrastructure sectors: energy and mining, transport, telecommunications and digital technologies, water supply and sanitation, municipal services;
• cross-cutting areas: environmental protection, nature management and forestry, emergency response and civil protection, justice and public administration, cleansing of the country's territory.
According to the National Recovery Plan, the programs include: strengthening institutional capacity, digital state, strengthening defense and security, striving for EU integration, restoring a clean and secure environment, energy independence and a green course, improving the business environment, ensuring competitive access to capital, ensuring macro-financial stability, development of sectors of the economy with added value, expansion and integration of logistics with the EU, restoration and modernization of housing and infrastructure in the regions, restoration and modernization of social infrastructure, development of the education system, modernization of the healthcare system, development of culture and sports systems, ensuring an effective social policy
Given the announced funding needs for recovery, the risks seem enormous. We need to look for answers to the question: how the restoration will work, who will control the effectiveness of the use of funds, how independent oversight will be implemented, what role the public will play [3], etc.
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Table 1.
Ways to reduce the risks of financing the post-war reconstruction of Ukraine
Risks Risk prevention
Concentration of powers
The distribution of functions is one of the most important safeguards to reduce the risk of fraud or misappropriation
Threat of
corruption
Implementation of corruption reporting mechanisms Disclosure of costs of donor funds
Cost control Disclosure of Donor Expenditures Ignoring
strategies, plans
Conducting regular internal audits and investigations. An important tool of public control is state financial control (Accounts Chamber, State Audit Service, Ministry of Finance of Ukraine). To strengthen control over spending, it is possible to use public control
Effectiveness of budgets
Establishment of specific tasks with targets and clear deadlines. Establishing those responsible for their implementation. Regular reporting on each item of the strategic document. Identification of responsible executors of the tasks of the strategies
Information resource
A new budget classification and chart of accounts should be approved by the financial authorities to make it easy to track post-war reconstruction spending.
The classification should contain at least the following categorization of restoration costs: expenditures for individual approved programs, groups of projects; costs by recovery phases (for example: response, recovery, development); spending by groups of beneficiaries; expenses by funding source
Source: [1].
According to researchers [2], it is expected that foreign aid will flow into the economy through the following main channels: increasing Ukraine's own budgetary capacity to finance the recovery program, when foreign funds go directly to the budget;
supplementing the national programs of Ukraine with certain projects or programs that will be financed and controlled by external donors; provision of guarantees and risk insurance for private investments.
Conclusions. Thus, the key task of public finance during the post-war reconstruction will be the adaptation of the existing infrastructure to new tasks and the emergence of a new category of budget expenditures, to which public attention will be riveted.
The decision-making process for recovery in such an environment needs to be transparent, accountable, and efficient. The first step should be the development of sectoral strategies describing the expected situation in the respective sectors in the medium and long term. These strategies must translate into an understanding of what projects may be required to achieve specific and measurable goals.
An important factor in the preparation of strategies and the transformation of strategies into action plans will be the availability of high-quality information on destruction to all stakeholders. To reduce the risks of corruption, duplication, loss of needs, inefficient spending of funds, an effective mechanism for the approval of restoration projects, their consistency, coordination and an information resource covering all sectoral and regional projects is required.
References:
1. Analitychnyi zvit «Pidkhody do prozoroho i pidzvitnoho vidnovlennia v Ukraini», traven 2022 [Analytical report "Approaches to transparent and accountable recovery in Ukraine", May 2022]. URL : https://brdo.com.ua/wp-content/uploads/2022/06/UA-Approaches-to-transparent-accountable-recovery.pdf
2. Bohdan T. Zahalni napriamy ta pryntsypy polityky derzhavnykh vydatkiv [General directions and principles of public expenditure policy]. URL : https://www.epravda.com.ua/columns/2022/11/3/693382/
3. Datsenko V. Skilky koshtuvatyme vidbudova: rozrakhunky Natsionalnoi rady z vidnovlennia [How much reconstruction will cost: calculations of the National Reconstruction Council]. URL : https://www.epravda.com.ua/columns/2022/
09/12/691412/
4. Zubyk S., Zymovets V. Koshty dlia pisliavoiennoi vidbudovy: iliuziia hroshovoho doshchu [Funds for post-war reconstruction: the illusion of money rain].
URL : https://voxukraine.org/koshty-dlya-pislyavoyennoyi-vidbudovy-ilyuziya-groshovogo-doshhu/
5. Kulykova V. Obiednani dlia vidbudovy [United for reconstruction]. URL https://eba.com.ua/ob-yednani-dlya-vidbudovy/
6. Malolietkova O. Vidbudova zruinovanoho. Shvydke vidnovlennia Ukrainy:
pytannia vyzhyvannia [Reconstruction of the destroyed. Rapid recovery of Ukraine: a question of survival]. URL : https://ukurier.gov.ua/uk/articles/shvidke-vidnovlennya-ukrayini-pitannya-vizhivannya/link.
7. Propozytsii yevropeiskoi biznes asotsiatsii shchodo vidnovlennia ekonomiky Ukrainy [Proposals of the European business association regarding the recovery of the economy of Ukraine]. URL : https://eba.com.ua/wp-content/uploads/2022/12/eba_vidnovlennya_ekonomiky_ukrayiny.pdf.
8. Ukraina: shvydka otsinka zavdanoi shkody ta potreb na vidnovlennia [Ukraine:
rapid assessment of damage and recovery needs]. URL : https://www.minregion.gov.ua/wp-content/uploads/2022/09/zvit-shvydka-oczinka-zavdanoyi-shkody-ta-potreb-na-vidnovlennya_-ukr-1.pdf.
9. Radchenko O. D., Tulush L. D., Leontovych S. R. State regulation of financial security under military conditions. The Russian-Ukrainian war (2014–2022):
historical, political, cultural-educational, religious, economic, and legal aspects : Scientific monograph. Riga, Latvia : “Baltija Publishing”, 2022. rp. (331-338). DOI https://doi.org/10.30525/978-9934-26-223-4-41.
10. Recovery Plan. URL : https://recovery.gov.ua/
11. Kabinet Ministriv initsiiuie mekhanizm strakhuvannia viiskovykh ryzykiv [The Cabinet of Ministers initiates the mechanism of military risk insurance]. URL :
https://www.ukrinform.ua/rubric-economy/3603128-smigal-rozpoviv-ak-pracuvatime-finansovij-ramstajn.html.
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