Cost of war: Ukraine’s reconstruction bill is huge, but the world can afford it

Even if Putin cannot be made to pay the estimated US$411 billion rebuilding cost, Ukrainians can be moderately confident the world will ensure it is covered
Importantly, this is a sober reminder of the grim costs of war and the absolute imperative to avoid it

David Dodwell

Published: 1:00am, 10 Apr 2023

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As world leaders fly around the world discussing whether or how to bring Russia’s war on Ukraine to an end, a World Bank report has brought us abruptly down to earth. It estimates that it will cost at least US$411 billion to rebuild the country – over twice the size of Ukraine’s war-damaged economy, 12 times more than its reserves and, for perspective, roughly equivalent to Hong Kong’s entire gross domestic product.

The Ukraine Rapid Damage and Needs Assessment report, a collaboration between the World Bank, European Union, United Nations and Ukraine government, is a sober reminder of the grim costs of war and the absolute imperative to avoid it.

Of Ukraine’s 44 million people, an estimated 13.5 million have been displaced across the country or forced to flee abroad. Almost 10,000 civilians are dead. Its GDP has crashed by more than 29 per cent and exports have fallen by a similar rate. Household incomes estimated at US$61.5 billion have been lost, with about 7.1 million people pushed into poverty.

The report is essential reading for anyone foolish enough to consider military “solutions” to conflicts or to disregard the provocations that give warmongers cause.

The US$411 billion figure is a sharp increase from its US$349 billion estimate last September, in part because of recent heavy damage to Ukraine’s energy sector, but the World Bank team has warned that reconstruction costs will keep rising while the war continues.

So far, it estimates that rebuilding transport infrastructure will cost about US$92 billion, with US$68 billion needed for new housing and US$47 billion for the energy sector. Even the removal of “explosive hazards” – landmines – will cost over US$37 billion. The big question, for those in Ukraine able to see beyond the immediate war effort, is who will pay for all this.

The knee-jerk response from many in Europe is: the Russian central bank, whose estimated US$300 billion in foreign reserves are frozen by sanctions. “In principle, it is clear-cut,” said Swedish Prime Minister Ulf Kristersson last month: “Russia must pay for the reconstruction of Ukraine.”

But this will be easier said than done. As Kristersson admitted, “there is currently no direct model for this”. And the aftermath of the first world war is a reminder that punitive reparation costs could pave the way to hostilities down the road.

For someone sitting in Ukraine’s finance ministry, the US$411 billion reconstruction bill may seem stupendously daunting – but, for many, the sum is not so intimidating. The German Institute of Economic Affairs estimates that the war cost the global economy US$1.6 trillion last year, and will cost a further US$1 trillion this year. Meanwhile, the International Monetary Fund expects the global cost of Covid-19 to rise beyond US$12.5 trillion. From this vantage point, the cost of rebuilding Ukraine is modest.

Note also that the United Nations expects reconstruction after the recent devastating earthquakes in Turkey and Syria to cost US$100 billion while in Japan, the costs of recovery from the 2011 Fukushima earthquake and nuclear power plant closure amount to almost US$90 billion.

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In the United States, the 341 weather and climate disasters that have struck since 1980 are estimated to have cost more than US$2.4 trillion, with each cyclone wreaking an average US$22 billion of damage.

It is also worth noting that as equity markets wobbled last year, the world’s 25 richest billionaires lost around US$200 billion – down to US$2.1 trillion. Much of Ukraine’s reconstruction bill could be settled simply by passing the hat around these 25 people. The Saudi government might also easily spare US$100 billion or so from its long-delayed US$500 billion Neom project on its Red Sea coast.

In the US military establishment, there are those who might feel the Ukraine war has so far been a “cheap” conflict. The Kiel Institute’s Ukraine Support Tracker notes that US support for Ukraine, as a proportion of US GDP annually, has been modest compared to its past conflicts. America spent over 13 times as much in the Korean war, five times that amount during the Vietnam war and three times more on the Iraq war.

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The tracker also noted that, compared to support for Ukraine, leaders in Europe spent far more on euro-zone bailouts after the 2008 global financial crash (close to €400 billion, or US$437 billion), while the EU pandemic recovery fund amounted to just over €800 billion. In the energy crisis triggered by Russia’s invasion, the German government gave its households energy support packages amounting to €264 billion – across Europe, these packages amounted to €570 billion in all.

In sum, even if Russia’s Vladimir Putin cannot be collared for the massive reparations bill, Ukrainians can be moderately confident the world will make sure its reconstruction costs are covered, one way or another. If corruption can be kept to a minimum and leaders are visionary enough to capture this grim opportunity to build “green” housing around a low-carbon infrastructure using renewable energy, Ukraine could end up as a model economy for a low-carbon future.

But first things first: the war must stop. And any other leaders tempted to consider war must read the World Bank report and pause for thought. Think of the many ways that US$411 billion could be better spent.

David Dodwell is CEO of the trade policy and international relations consultancy Strategic Access, focused on developments and challenges facing the Asia-Pacific over the past four decades