Experts of the Economic Policy Advisory Council to the Ministry of Economy of Ukraine presented the Working Paper #1 “Financing Democracy: Why and How Partners Should Support Ukraine.” Protecting and rebuilding Ukraine requires a significant military effort and a large-scale reconstruction program. It deems almost impossible without unprecedented support from partners over a long period of time. For the effective implementation of the specified measures, the experts of the Advisory Council suggest two main steps:

• The conclusion of a “democracy financing” deal with key donor states, where Ukraine commits to key outcomes on democracy, defence and fiscal self-reliance when the war and reconstruction is over in return for sustained support until then. 

• Define a clear framework of cooperation with donors to manage the inevitable tensions that will arise over the extended period of extraordinary needs. With input and oversight from partners, Ukraine should be trusted to draw up, implement and report on a credible reconstruction plan. Partners should provide ongoing oversight alongside the promised support, while aligning their efforts with each other and their demands with the reconstruction plan.

Members of the Advisory Council express concern about the available volume and compliance with the terms of support from other international partners of Ukraine. In particular, there is a possibility that the Ukraine Facility, a 50 bln EUR financial instrument, which should begin in January 2024, will be delayed by the European Union. In addition, the previously discussed commitments of the US are at risk with proposals to support Ukraine being held up in Congress. At the same time, the conditions attached to support have rapidly increased in a disorganized way.

“We contend that a broader political accord with partners is imperative, given that Ukraine’s democratic and security challenges transcend the technical purview of the IMF, involving major democratic nations—the USA, the United Kingdom, Japan, and the European Union,” remarked Council Chairman Yuriy Gorodnichenko.

“The financial exigency is remarkable: the IMF’s approved assistance until 2024 is $3 billion, and the EU, through the Ukraine Facility, might contribute €18 billion—yet, collectively, this falls short of Ukraine’s financing gap until 2024,” noted KSE President Tymofiy Mylovanov.

According to experts, the obligations of the Ukrainian Government within the framework of a potential agreement should include:

• Drawing up a deliverable reconstruction plan, in particular the issue of priorities and pace of implementation of reforms in the field of defence and reconstruction, taking into account the views and input of donors;

• Effective implementation of the Plan, in particular regarding structural measures to increase the competitiveness and efficiency of the national economy;

• Issues of transparency and accountability, timely and transparent reporting by the Government on the implementation of the Plan, as well as steady progress in fighting corruption.

The members of the Advisory Council propose to place responsibility on the partners of Ukraine in the following areas:

• Delivery of committed resources, namely financial support in the specified amount and terms, including facilitating the provision of financial support from Russian sources;

• Compliance with the conditions of cooperation, namely consistency with the Recovery Plan and avoid making competing or contradictory demands;

• Coordination and oversight of the aid provided by creating mechanisms for streamlining discussions with the Ukrainian Government;

• Grant-centred funding. Given Ukraine’s major needs and limited financing and debt capacity, partners should commit to immediate post-war funding in the form of grants.  Over time, as Ukraine’s financial position improves, loans can play a larger role. 

Read the full text of the Working Paper #1 of the Economic Policy Advisory Council “Financing Democracy: Why and How Partners Should Support Ukraine” via link: https://kse.ua/wp-content/uploads/2023/12/Working-Group-Paper-1.pdf 

The Advisory Council, led by Yuriy Gorodnichenko, a professor in the Department of Economics at the University of California, Berkeley, and featuring the President of the Kyiv School of Economics, Tymofiy Mylovanov, contributes to formulating recommendations on Ukraine’s recovery architecture. This encompasses fiscal and monetary policy, the labour market, and state regulations. 

We extend our sincere appreciation to Jacob Nell, Senior Research Fellow at the KSE, the leading author of the first working paper of the Council, “Financing Democracy: Why and How Partners Should Support Ukraine”, for his valuable contributions and leadership throughout the research process.