Ukrainian economy in 2024: search for finance and recovery strategies

US and EU aid is being blocked in Ukraine, which serves as a signal of the need to wake up and return to reality. Ukraine needs more and stronger support from the international community.

Indeed, despite the promised support “as long as needed,” it seems that the “fatigue” of Western partners is becoming more noticeable. Three important events in 2024 could create new political challenges, primarily for Ukraine. We are talking about Putin's elections in Russia, which will take place in March, parliamentary elections in the EU in June, and presidential elections in the United States in November.

This may significantly shift attention in the international information space on Ukrainian issues, which will affect the support of international affairs, or, conversely, strengthen the emphasis if the EU and the United States use the topic of assistance to Ukraine to score political points. Of course, this will be influenced by the level of European and American support for continued assistance.

Therefore, against the background of Russian narratives in Europe about “if Russia wins”, which will only grow, Ukraine will need more influence on the international stage. Reconstruction conferences or demands for weapons alone will not achieve this. Moreover, new challenges will be not only advocating for assistance, but also the extension of the deferment of payments on international bonds by $20 billion, the freeze on which ends in August 2024.

In 2023, the EU became the largest donor of direct budget assistance, sending a promised 18 billion euros to support Ukraine.

Requirements for 2024, according to new estimates, have decreased slightly - from 41 to 37.5 billion dollars in external financing. However, with an actual 0 from international affairs at the beginning of the year, this figure seems scary. In addition, two-thirds of the total amount remains in doubt even after decisions on assistance.

However, it is already clear that Ukraine will have to start the year not with an optimistic scenario, but with “Plan B”, counting on its own resources in January-February, despite the fact that the economy and the entire social sphere are now completely dependent on international assistance. A hole in the budget can lead to budget cuts and higher taxes, or to turning on the printing press, which is an even worse decision.

Under an optimistic scenario, Ukraine will receive the release of 18 billion euros from the European Commission and more than $10 billion from the United States at the beginning of 2024. Also promising is the provision of $5-6 billion from the IMF, subject to successful implementation of the program.

The authorities will try to extend the 1.5 billion euros of assistance from the European Commission, received in December, over this period, and to bring forward all other possible expenses so that there are no problems with social payments. Of course, there will be no talk of restoration at this time.

Will 2023 be a lesson for 2024 in recovery?

In 2023, a “rehearsal” for restoration took place. Due to loud screw-ups with purchases that were not on time, and inflated prices in estimates, it clearly did not go well.

However, all unsuccessful decisions should be a lesson for 2024, where the main theme is “a return to reality”, what society expects.

After all, the more Ukrainian officials moved away from the war and immersed themselves in the construction of swimming pools, stadiums, brooks and pre-war projects in general, the less support both from society and from international partners became.

At the same time, the main results of the restoration were 3.8 thousand high-rise buildings and 19 thousand private houses, 9.2 thousand energy infrastructure facilities, more than 400 heat supply and 200 water supply, 448 schools, 237 kindergartens, 390 medical institutions.

Under the eVidnovlennya program, Ukrainians submitted more than 62 thousand applications, for which payments worth UAH 3.2 billion have already been agreed upon. Compensations for destroyed housing have begun: out of 7 thousand applications, more than a thousand have already received approval - housing certificates have already been generated for UAH 2.4 billion, the average certificate amount is UAH 2.1 million.

Housing is the No. 1 recovery issue that people are most concerned about. However, it is obvious that most of the funds in 2023 were not used to restore housing - for obvious reasons, because compensation mechanisms were being developed.

Therefore, the focus for the next year should be the restoration of housing, including social housing, at a level with the restoration of critical and essential infrastructure.

What needs to change in recovery

Despite the development of transparent recovery tools, such as the Liquidation Fund, which is projected to shrink, in 2024 the government will try to take manual control of recovery costs.

In particular, through the Reserve Fund in the amount of UAH 42.2 billion, financing of critical needs is provided, including restoration - from road repairs to the restoration of schools. This is a convenient mechanism for the government when funds are allocated without prioritization methods, access to commission meetings and any publicity.

An alternative to manually managing recovery could be the bill “On the Basic Principles of Recovery” with the creation of a Recovery Fund, which is now being actively developed. It is important that it becomes not a framework and declarative, but a specialized “passport of recovery.” Therefore, here it is necessary to prevent the transfer of key provisions to the level of by-laws, but to approve the main conditions for restoration precisely at the level of law.

What should be provided for at the level of the law “On the Basic Principles of Recovery”?

First: the creation of a Recovery Fund, where funds for restoration will be accumulated. The new fund should take into account the proven procedures and practices of the Fund for Elimination of the Consequences of Armed Aggression regarding a clear and open procedure for selecting and financing projects.

Second: mandatory application of project prioritization rules. Currently, prioritization is advisory in nature. To prevent funds from being allocated to projects that are not relevant, priority rules based on clear selection criteria should be mandatory when allocating funds to any restoration project.

This would protect such cases as the case of People’s Deputy Odarchenko, who tried to give a bribe of 50 thousand dollars in bitcoins to the head of the Recovery Agency for allocating funds from the Liquidation Fund for the repair of the State Biotechnological University, where he was previously the rector and for which until still has influence as a deputy.

Using clear prioritization criteria will make it impossible to push through such decisions. After all, prioritization will allow you to track which objects were allocated funds, why and how many points they scored.

Third: DREAM for all recovery objects. This provides for the mandatory inclusion of the project in the DREAM digital ecosystem as a condition for receiving funding from the Fund. In the future, this will make it possible to track each stage of the restoration project, sources of financing, amounts of funds used and the list of work performed.

In 2024, the official and full launch of the DREAM system will take place, which must be regulated at the legislative level.

Fourth: transparency. It consists of mandatory broadcasting of meetings of commissions on the allocation of funds and the publication of applications, protocols, decisions, etc.

It was the publication of applications for funding from the Liquidation Fund that made it possible to stop initiatives such as the restoration of the swimming pool and stadium in Zhitomir in advance.

Fifth: the right of local governments to independently submit projects for financing, as this was achieved in the work of the Liquidation Fund. Otherwise, we will return to centralization in matters of reconstruction, when regional military administrations will have complete carte blanche.

Democratic rules for reconstruction should be consolidated in parallel with the reform of the National Police, which is one of the key players in combating corruption during reconstruction, as well as strengthening financial control over the use of reconstruction funds.

Thus, it is the police who investigate 90% of crimes and the vast majority of corruption offenses. In December, the development of a bill on competitions for senior positions in the police was supposed to start, which is the first and most important step towards reforming the law enforcement agency. This is provided for by the State Anti-Corruption Program, but was constantly put on the back burner.

The public made several statements on this matter, including to the European Commission and INL. We are talking about demands for the introduction of an open and transparent competition for the leadership of the National Police, competitions for the heads of territorial divisions and integrity checks.

As for strengthening financial control, the State Audit Service of Ukraine has now been identified as the main body that will monitor the use of funds during recovery. Therefore, it is necessary to carefully monitor the work of the State Administration of Ukraine and the development of tools for monitoring and holding accountable for violations of the procedure for using budget funds.

In 2024, all we have to do is continue to donate to the Armed Forces of Ukraine and ensure that the “donations” from international affairs for restoration are used for their intended purpose. And while the guys on the front line are retaking our territories, we must fight corruption, purchases that are not in time, and be watchdogs on the ground.