Ukraine faces an enormous challenge irrespective of when the war ends. There is a natural desire to rebuild the country, indeed to rebuild it better, coupled with a desire to strengthen the economy in preparation for the EU accession process. Both of these aspirations will require huge investments, and thus huge amounts of capital. Given these amounts, only part of the investments can be financed out of Ukraine’s public budget. Some foreign capital will come from international institutions and sources, like the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), the International Monetary Fund (IMF) and the World Bank. Much of the remaining funding gap, probably the much larger part, will have to be covered by private capital. Part of the latter may flow from abroad, the other part will have to come from domestic savings. Realising investments, therefore, requires a strong and effective domestic financial system, capable of mobilising and allocating large amounts of capital.
The current political situation, with a threat of diminished financial and military support from the US and similarly from some countries in Europe, adds to the demand for strengthening the financial system in Ukraine: the country must prepare for a further drying up of government support, be it from the US or Europe. The only way forward is to render Ukraine’s financial institutions viable enough and the system as a whole effective enough to attract sufficient international capital, from public and private sources, to master its sizable reconstruction challenges. The main conclusions and recommendations developed in this report can be grouped under four headings: a longer-term vision; a suitable rule book; institutional innovations; and regulatory changes.
