At least three or four Marshall Plans are needed to rebuild Ukraine

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

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

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In the immediate aftermath of a new round of Russian missiles raining down on Kyiv, the Canada-Ukraine Chamber of Commerce and Canadian Business Council convened a “Rebuild Ukraine” conference in Toronto on Wednesday, November 23, to catalyze additional support for Ukraine. Deputy Prime Minister Chrystia Freeland headlined a day of speakers, along with a number of Canadian and Ukrainian officials and businesspeople.

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The meeting took place after the federal government announced the so-called “Ukraine sovereignty bond” in October. The facility allows individual Canadians to borrow up to $500 million in $100 increments from Ottawa to Kyiv through the International Monetary Fund (IMF).

This bond is based on $2 billion in direct financial assistance from the Government of Canada to Ukraine through 2022, all of which has already been disbursed, with approximately $1.5 billion transferred through the IMF. Canada has also allocated more than $2.5 billion in military, humanitarian and other aid to Ukraine this year. Ottawa says this brings Canada’s 2022 commitments to Ukraine to more than $5 billion — about 63 percent of Canada’s $6.3 billion (about $7.9 billion) in official development assistance in 2021.

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For Canada, much is still a drop in the bucket of Ukraine’s sprawling reconstruction costs. By June 1, the World Bank, the European Union and the government of Ukraine agreed on the reconstruction project in the amount of 349 billion US dollars.

This total is likely to increase to more than $600 billion by the end of 2022 – more than three times the annual GDP of pre-occupation Ukraine. The Kyiv School of Economics (KSE) estimates that Russia has added another $31.5 billion to its bill by Labor Day. KSE estimates that approximately $4.5 billion worth of additional civilian infrastructure is destroyed each week. In addition, the Ukrainian government is running a deficit of about $3-5 billion each month, with tax revenues falling amid a projected 33 percent drop in economic output. For context, Canada’s real GDP fell by 5.2 percent in 2020 during the pandemic shutdown.

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Much of the current Western aid is drowning Ukraine in debt

Canada-Ukraine Chamber of Commerce President Zenon Potichny on Wednesday called for a “21st century Marshall Plan” to rebuild Ukraine. The original US Marshall Plan to rehabilitate 17 European nations after World War II provided only US$13.3 billion, or about US$150 billion in today’s terms.

Almost all of the Marshall Plan was funded by grants or forgiven loans, while much of the current Western aid is drowning Ukraine in debt. At the very least, servicing these loans should depend on Ukraine’s future economic recovery – not on a fixed payment schedule.

At least three or four Marshall Plans are needed to rebuild Ukraine. Western governments have little chance of footing the bill: they haven’t even committed to covering the $50 billion deficit that European scientists expect Ukraine to face in 2023.

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The resources provided by the West have been sent slowly and unpredictably. We risk having the Ukrainian government ask its central bank to finance its deficit, thereby increasing the chances of devastating inflation, a further depreciation of Ukraine’s currency, the hryvnia, and a reversal of the country’s still-unfinished pre-war reforms. efforts.

Canada needs to do more to attract private capital to keep Ukraine afloat and smooth its renewal. Several speakers at the Rebuild Ukraine conference noted that American and European businesses are already positioning themselves to participate in Ukraine’s war economy, its post-conflict recovery, and eventual accession to 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. Canada’s Ambassador to Ukraine Larisa Galadza noted at the Rebuild Ukraine event that CUFTA is being “modernized” to include services such as IT and back-office functions. Still, this is not enough.

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Halyna Yanchenko, secretary of Ukrainian President Zelensky’s National Investment Council, was clear: Deepening Western support requires more private trade and direct investment.

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However, Export Development Canada (EDC), Ottawa’s main vehicle for helping Canadians doing business abroad, lists Ukraine as “open on a limited basis” for operations. The Canadian government’s self-styled “international risk experts” are still hedging their bets, while Freeland urges Ukraine’s allies to be as resilient as the country’s frontline fighters and brave civilians. These constraints must be addressed so that all EDC loans, insurances and guarantees can be mobilized to reduce the uncertainties faced by Canadian businesses in Ukraine.

DVT should go further and involve its own FinDev branch. This will include expanding FinDev’s focus from Africa and Latin America. FinDev’s mandate has now 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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In fairness to DVT’s leaders, they have an impossible task: be bold, but don’t lose any money while they’re at it. Canadians must accept that taking risks in the existential struggle for the future of democracy and the rules-based international order means that few loans or guarantees will go bad. These losses are likely orders of magnitude smaller than the private flows of Canadian investment and trade that DVC’s financial instruments could catalyze.

Until EDC’s website says “Ukraine: encouraged for business”, we must force ourselves to be bolder.

Brett House is a fellow at the Public Policy Forum, the Munk School, and Massey College. He tweeted @BrettEHouse.

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