Ukraine needs $250 bln foreign capital for rapid recovery in five years - EBRD

MOSCOW. May 16 (Interfax) - Ukraine's five-year recovery period following the crisis will require additional investments of about $50 billion a year thanks to the inflow of foreign capital, including private.

Such a scenario was outlined by the European Bank for Reconstruction and Development in its Regional Economic Prospects report published on Tuesday, Ukrainian media reported.

The bank said rapid recovery was not the norm, but 29% of economies do achieve their pre-crisis per capita GDP within five years.

"For Ukraine to recover within five years, its economy would need to grow by 14% a year throughout that period. This would raise average GDP to $225 billion from around $150 billion in 2022, in constant prices," the bank said.

So far the bank has left its 2023 and 2024 GDP growth forecasts for Ukraine unchanged at 1% and 3%, respectively.

It said the main feature that periods of sustained, exceptionally high economic growth have in common is high ratios of investment to GDP. Before the crisis, moderate levels of investment in Ukraine were mostly financed by domestic savings: inflows of capital amounted to just 3% of GDP a year from 2010-2021. And foreign direct investment typically drops substantially after a crisis and takes a long time to recover.

When domestic savings have been low, foreign financing helped sustain a number of investment booms, including in central and Southeastern Europe in the 2000s, the EBRD said.

In Ukraine's case, doubling its levels of investment as a share of GDP would require a major increase in the country's absorption capacity, including governance structures needed to design and contract out complex projects, the EBRD said.

"In this scenario, the difference between the required levels of investment and the available domestic savings would likely need to be covered by external financing (net inflows of capital), to the tune of 20% of GDP or $50 billion per annum," the report says.

The bank also stresses the importance of private investment, as the private sector contributes much-needed technological expertise, management know-how and a focus on cost-efficiency.

"In addition to the energy-efficient industrial capital stock and agricultural machinery, the private sector can make an important contribution to rebuilding housing stock as well as transport, energy and municipal infrastructure, provided that individuals and firms have adequate access to finance, "the bank said.

The EBRD said it had committed to investing 3 billion euros in Ukraine in 2022-2023, supporting the real economy, and stood ready to play a key role in reconstruction when circumstances allow.

Reports have said it is anticipated that international financing or Ukraine to cover its fiscal deficit will rise to $42.3 billion in 2023 from $32 billion in 2022.

The National Bank of Ukraine has said direct incoming investment fell back to $51.1 billion as of the end of 2022 after peaking at $65.7 billion at the end of 2021.