Over the last few months there have been many and varied estimates of how much the reconstruction of Ukraine will total, with figures ranging from $350bn to over $1tn. The difficulty with giving a precise estimate is that the war is still ongoing. But one thing is clear, Ukraine will need support from both the public and private sectors from around the world.
Speaking at the virtual central and eastern Europe event hosted by OMFIF’s Sovereign Debt Institute on 10 November, Yuriy Butsa, Ukraine’s government commissioner for public debt, said one of the main things he is now preoccupied with was how to bring back the private sector to Ukraine.
‘We have a very big cost of reconstruction for the country and not the rebuilding of what was damaged but rebuilding it back better,’ said Butsa. ‘We obviously understand from one side the current credit risk of the country doesn’t allow for any market access. From the other side, we are also thinking about the official sector support for all those big numbers for the reconstruction, but we don’t want to rely solely on other countries’ taxpayers’ money because we are used to being a standalone borrower and having a lot of self-reliance.’
Butsa said the key was to use the public sector to bring back the private sector, naming various solutions used in the past such as partial guarantee schemes, Brady bonds and risk-sharing facilities.
‘We might be able to finance the budget with only official sector support,’ said Butsa. But he added that he was ‘really sceptical’ that they would be able to cover all of the costs of the reconstruction with just this support.
Simon Quijano-Evans, chief economist at Gemcorp Capital, agreed with Butsa that there must be a co-operation between the public and private sector.
‘This has to be a combined effort given the huge damage and also something the European Union has to focus on in the future,’ said Quijano-Evans. ‘We don’t know how long this unfortunate event will last but it’s a good time to start preparing for the future of the country and for the future of its people. The private sector lenders will be there to participate.’
Ukraine aims to come back from the war even stronger, with a focus on a green reconstruction. ‘Nobody thinks that we need to rebuild what was damaged in the same shape and form,’ said Butsa, acknowledging the lack of energy-efficient buildings in Ukraine.
Could Ukraine use thematic bonds to finance its reconstruction? Social bonds in particular would make a lot of sense, Butsa observed, given that a big part of its budget now and going forward will have social expenditures. But that will depend on when Ukraine eventually comes back to the international debt markets.
‘Our goal immediately when we win this war is to be back to the market as soon as practically possible,’ said Butsa. ‘Our aim is to preserve what we achieved because we spent a lot of time and effort to build this trust with investors and this open relationship with the investment community.’
Butsa said even though Ukraine has no pipeline of deals in the international bond market, he has been spending a lot of time talking to investors and keeping them engaged with the situation.
‘When we will be ready to come back to the market, we will have a good, positive story similar to what we had in 2017 after we got back to the market from the first part of Russian aggression to Ukraine,’ said Butsa.
Burhan Khadbai is Head of Content at OMFIF’s Sovereign Debt Institute.