The head of the European Investment Bank has urged EU governments not to wait for the ink to dry on the Ukraine peace deal before starting work to rebuild their infrastructure.
Werner Hoyer told the Financial Times in an interview ahead of a London conference devoted to Ukraine’s post-war recovery that while the work involved had “very, very bloody risks”, rebuilding needed to start now.
“Building resilience — call it rebuilding or whatever — needs to be done now and not someday, hopefully when the ink on the peace treaty dries up,” Hoyer said, acknowledging that the war could last “a long time” “.
The European Investment Bank, which is wholly owned by EU member states, began lending to Ukraine in 2007 and has financed 54 projects worth more than 8 billion euros, some of which are in progress.
The role of the EIB is to provide loans for infrastructure. It is far from Ukraine’s largest lender. Since February 2022, the World Bank has disbursed $23 billion, mostly in the form of budget support, mostly from the United States. The International Finance Corporation, the World Bank’s private lender, has pledged another $2 billion.
Domestically, the EBRD has lent 2.4 billion euros since the start of the full-scale invasion and is preparing a capital increase to increase lending to Ukraine.
Hoyer said that there is a whole set of projects to be financed, and loans should not be reduced. This year, the European Investment Bank needs to provide 2 billion to 3 billion euros of funds. The total cost of reconstruction is estimated at hundreds of billions of euros.
The problem, Hoyer says, is that the EIB needs to raise money in the capital markets. These markets will not lend without assurances from EU member states that they will cover losses on loans for theater projects.
While there have been guarantees in the past, there are now no guarantees in the EU’s 2023 budget, he said. “We have a lot of good projects and constraints because of the lack of guarantees.”
Others, however, argue that the EIB could use its balance sheet to lend to the war-torn country, rather than relying on guarantees from EU member states.
Hoyer said he hoped they would rework a new EU budget next year. At the same time, the bank set up a trust fund to receive voluntary contributions from EU member states.
He urged EU member states to commit to filling the trust fund at the London meeting. “We’re not anywhere near where we want to be,” he said.
His comments come as the European Commission prepares to publish a review of its long-term budget, which will include a four-year, 50 billion-euro funding program for Ukraine, including grants and loans. The financing, which requires the support of EU member states, is intended to provide longer-term certainty for this year’s 18 billion euro EU budget support programme.
Hoyer said the EIB wants to help repair bridges that Ukraine blew up in 2022 to stop the advance of Russian troops and maintain infrastructure such as subway systems in major cities that have traditionally relied on Russian technology.
He added that the task of rebuilding the Kakhovka dam and its hydropower station should begin “as soon as possible” once the area is sufficiently safe. This will help meet Ukraine’s needs for electricity as well as water for drinking and irrigation.
BlackRock and JPMorgan are helping the Ukrainian government develop a reconstruction bank plan to channel public seed capital into reconstruction projects, which Hoyer said could work in tandem with the European Investment Bank’s role in the country. Some estimates, such as those from the World Bank, put the final reconstruction cost at $411 billion.
He urged the private sector to speed up its economic ambitions, which he said were “performing surprisingly well” for a country under siege from foreign powers. According to the International Monetary Fund, the output of the Ukrainian economy has fallen by 30% in 2022, but is expected to almost stabilize this year. The outcome will depend on the course of the war and the potential return of refugees.
“From the quick repair of destroyed or damaged infrastructure all the way to generating tax revenue, I must say I’m really impressed,” Hoyer said, adding that many EU citizens would be surprised by the efficiency of Ukraine’s bureaucracy.
But he stressed that he was “not naive” about the corruption that persisted in the Ukrainian economy, and that the EIB always made sure to see the results of its loans before distributing additional funds.
Additional reporting by Ben Hall in London and Sam Fleming in Brussels