Home Economy The recovery of Ukraine will require at least three or four Marshall Plans

The recovery of Ukraine will require at least three or four Marshall Plans

by SuperiorInvest

Canada’s support for a war-torn country must be bolder

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Canada is looking to increase its support Ukraine. Bolder government and business efforts are needed if we are to make a meaningful contribution to Ukraine’s survival and recovery.

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Just after a new round of Russian missiles hit Kyiv, the Canada-Ukraine Chamber of Commerce and the Business Council of Canada convened a “Ukraine Recovery” conference on Wednesday, November 23 in Toronto to accelerate further support for Ukraine. Deputy Prime Minister Chrystia Freelandalong with a number of Canadian and Ukrainian officials and businessmen, were the day’s keynote speakers.

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The meeting came on the heels of the October federal government notification about the so-called “Ukraine Sovereignty Bond“. This facility allows individual Canadians to underwrite a loan of up to $500 million from Ottawa to Kyiv through the International Monetary Fund (IMF) in the amount of $100.

The bond builds on the Canadian government’s $2 billion in direct financial assistance to Ukraine in 2022 that has already been disbursed, with approximately $1.5 billion transferred through the IMF. This year, Canada alone allocated more than $2.5 billion in military, humanitarian and other aid to Ukraine. Ottawa says this will bring Canada’s commitments to Ukraine to more than $5 billion in 2022 — about 63 percent of Canada’s $6.3 billion (about $7.9 billion) total. official development assistance in 2021.

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What is a lot for Canada is still a drop in the bucket of the rising cost of reconstruction in Ukraine. Until June 1, the World Bank, the European Union and the Ukrainian government bound rebuilding bill at 349 billion USD.

This amount is likely to rise to more than $600 billion by the end of 2022, three times the annual GDP of Ukraine before the invasion. Kyiv School of Economics (KSE) estimates that Russia added another $31.5 billion to the bill by Labor Day. KSE calculates that around $4.5 billion of additional civilian infrastructure is destroyed each week. In addition, the Ukrainian government runs a deficit of around US$3-5 billion every month and tax revenues are falling. projected 33% drop in economic performance. For context, Canada’s real GDP shrank by 5.2 percent in 2020 during pandemic shutdowns.

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Much of the current Western aid puts Ukraine in debt

On Wednesday, Zenon Potichny, president of the Canada-Ukraine Chamber of Commerce, called for a “Marshall Plan of the 21st century” to rebuild Ukraine. Original USA The Marshall Plan only $13.3 billion was provided for the rehabilitation of 17 European nations after World War II—about $150 billion in today’s terms.

Almost all of the Marshall Plan was provided through grants or forgivable loans, while much of the current Western aid puts Ukraine in debt. At a minimum, the servicing of these loans should be conditional on the future economic recovery of Ukraine – not tied to a fixed repayment schedule.

The recovery of Ukraine will require at least three or four Marshall Plans. But there is little chance that Western governments will foot the bill: they have not even pledged to cover the $50 billion fiscal deficit that European academics expect Ukraine will face in 2023.

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The funds provided by the West were sent slowly and unpredictably. We risk leaving the Ukrainian government stuck asking its central bank to finance its deficit, increasing the chances of devastating inflation, further erosion of the value of Ukraine’s currency, the hryvnia, and the undoing of the country’s still-unfinished pre-war reforms. effort.

Canada must make a more concerted effort to engage private capital in keeping Ukraine afloat and facilitating its recovery. Several speakers at the “Rebuild Ukraine” conference noted that American and European businesses are already gearing up to participate in Ukraine’s war economy, its post-conflict reconstruction, and its eventual entry into the European Union.

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The Canada-Ukraine Free Trade Agreement (CUFTA) has been in force since 2016. In June 2022, the federal government suspended tariffs on all Ukrainian goods for one year. Canadian Ambassador to Ukraine Larisa Galadza noted on “Rebuild Ukraine” that CUFTA is being “modernized” to include services such as IT and back-office functions. Still, it’s not enough.

Halyna Yanchenko, secretary of Ukrainian President Zelensky’s National Investment Council, was clear: more private trade and direct investment are needed to deepen support for the West.

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Still, Ottawa’s main tool to help Canadians doing business abroad is Export Development Canada (EDC), lists Ukraine as “open on a limited basis” for activity. Government of Canada self-styled “international risk experts” are still hedging their bets at the same time Freeland calls on Ukraine’s allies to be as steadfast as the country’s frontline fighters and unharmed civilians. These constraints need to be addressed in order to mobilize EDC’s range of loans, insurance and guarantees to ease the uncertainties facing Canadian businesses in Ukraine.

EDC should go further and involve its FinDev subsidiary. This would mean expanding FinDev’s focus from Africa and Latin America. FindDev’The mandate has already expanded from supporting the poorest developing countries to upper-middle-income countries such as Peru. If ever there was a time for more mission creep, this is it.

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To be fair to EDC leaders, they are tasked with an impossible task: be bold, but don’t lose any money while they’re at it. Canadians must accept that risking the existential struggle for the future of democracy and the rules-based international order means that a few loans or guarantees will fail. These losses are likely to be many orders of magnitude smaller than the private flows of Canadian investment and trade that EDC financial instruments could catalyze.

Until the EDC website says “Ukraine: encouraged to do business”, we will have to keep trying to be bolder.

Brett House is a member of the Public Policy Forum, the Munk School and Massey College. He tweets at @BrettEHouse.

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