In an interview with EURACTIV, the former Ukrainian economy minister and current advisor to President Volodymyr Zelenskyy, Tymofiy Mylovanov welcomed EU help but called for the use of grants instead of loans since an over-indebted Ukraine would scare off private investors and make reconstruction more difficult.
On Wednesday (18 May), the EU Commission announced a proposal to increase the macro-financial assistance to Ukraine by €9 billion.
“€9 billion sounds like a good amount, although it stops short of what is needed,” Mylovanov told EURACTIV, adding that Ukraine needed about $5 billion a month to keep going.
The International Monetary Fund (IMF) even estimated an amount of $15 billion until the end of June. “Hopefully, the US and others will come in as well,” Mylovanov said regarding the shortfall.
Mylovanov, also president of the Kyiv School of Economics, is confident that the aid package can be increased.
What worries Mylovanov more is that the EU money is coming in the form of loans, thus increasing Ukraine’s debt level, which might crowd out private investors.
“Giving loans instead of grants means that the Ukrainian debt to GDP ratio will increase, and rating agencies that look at this ratio will consider Ukrainian debt less sustainable,” he said.
“There will be less private investment, but at a higher cost.”
“For the economy to be robust and for democracy to be successful, we need a proper balance between government investment and private investment, so we should not crowd out private investments right now,” Mylovanov told EURACTIV.
Ukraine’s debt to GDP ratio hovered at around 43% at the end of 2021, which is low compared to other European countries. But with the economy expected to contract by up to 50%, tax income dropping by 50-80%, and public debt increasing fast, this ratio will go through the roof.
Gravity forces toward EU accession
While Mylovanov is worried that the macro-financial assistance comes in the form of loans only, he commended the EU Commission’s proposal to create the so-called “RebuildUkraine” platform, which should lead the long-term reconstruction effort in Ukraine.
The platform is meant to be co-led by the Ukrainian government and the EU Commission but should also be open to other partners.
“It’s very good that the EU Commission proposes a mechanism anchored around the EU because the point of gravity for the Ukrainian development is EU accession,” Mylovanov said.
“There will be political and economic gravity forces towards the European future of the EU.”
The communication published by the EU Commission proposed that the Ukrainian authorities should have “full ownership” over the reconstruction effort but also that the reconstruction would be linked to a reform agenda that should help Ukraine align with EU standards.
As for the total amount of funds that Ukraine will need for the reconstruction, Mylovanov estimated that about $500-600 billion would be required, but he said this could be spread out over 10 years.
Also, concerning the long-term reconstruction, Mylovanov argued for grants instead of loans. “It could be 20-30% loans and the rest in grants, but not the other way around,” he said.
[Edited by Alice Taylor]