A new report released by the Center for European Policy Analysis (CEPA), "Resilience, Reconstruction, Recovery: The Path Ahead for Ukraine," estimates the total damages from the Ukraine war at between $485bn and $1 trillion and notes that Western aid delivered thus far has been woefully inadequate for genuine reconstruction.

Total damages

As of January 2024, the total physical damage inflicted by the Ukraine war have reached $154.9bn, according to the CEPA report. This damage encompasses the direct costs of destroyed or damaged physical assets and infrastructure, reflecting the extensive toll exacted by the conflict.

With Russia's retreat from certain Ukrainian territories and a reduction in the geographical shifts of the front line, damages have somewhat stabilised compared to the earlier stages of the war. Nonetheless, heavy fighting continues to ravage parts of the country, contributing to ongoing economic losses.

Losses attributed to changes in economic flows due to the war have been estimated at a staggering $499.6bn as of February 2024, underscoring the far-reaching impact of the conflict on Ukraine's economic landscape. That is more than the recent World Bank assessment that the total damage is worth $486bn.

The damages are not evenly distributed across sectors, with social sectors bearing the brunt of the impact, accounting for $71.4bn. Infrastructure sectors follow closely behind, with damages totalling $54.4bn, while productive sectors have incurred $28.9bn in damages.

Among the hardest-hit sectors, housing tops the list with damages amounting to $58.9bn, followed by transportation infrastructure with $39.9bn in damages. Other sectors significantly affected include commerce/industry, agriculture/forests, energy, and education.

Regional disparities also feature prominently, with occupied parts of the country bearing the heaviest burdens of damages. Regions such as Donetsk, Kharkiv, Luhansk, Zaporizhzhia, and Kherson have suffered significant losses due to their proximity to the front line. Additionally, areas repeatedly targeted by missile and drone strikes, including Kyiv and the wider Kyiv region, have also sustained substantial damages, highlighting the widespread impact of the conflict across Ukraine.

Social costs

The housing sector has borne a significant brunt of the conflict, with total damage estimated at $58.9bn as of January 2024. Approximately 250,000 residential buildings have been destroyed or damaged, affecting 1.4mn households and 3.4mn people. The extent of damage varies across regions, with cities like Sievierodonetsk and Bakhmut witnessing extensive destruction. The destruction of the Kakhovka dam in June 2023 exacerbated flooding risks, exposing an additional 36,000 residential buildings to significant damage.

Direct damages in the education sector amount to $6.8bn, with close to 380 educational facilities destroyed and around 3,429 damaged. The suspension of educational services in many areas and the redirection of resources to other priorities have compounded losses, with indirect losses standing at $6.9bn. Reconstruction needs are estimated at $13.9bn.

The health care sector has also suffered substantial damage, with direct losses estimated at $3.1bn. At least 1,284 health care facilities, including hospitals and clinics, have been damaged or destroyed. Indirect losses amount to $17.8bn, with reconstruction needs estimated at $14.2bn.

Additional damage to other social sectors total $2.6bn, with reconstruction needs reaching $53.4bn. The devastation extends to social services infrastructure, where indirect losses significantly outweigh direct damage, amounting to $9.5bn. The culture, religion, and tourism sectors have also been affected, with direct damages totalling $2.4bn.

Damages to administrative buildings totaled around $500mn, while indirect losses are estimated at $6.8bn and $11.4bn will be needed for reconstruction.

Infrastructure

Direct damages to Ukraine's transportation infrastructure stand at $39.9bn, with roads, railroads, airports, and ports all suffering significant destruction. Over 25,400 kilometres of roads and 344 bridges have been damaged or destroyed, while more than 507 kilometres of railroad tracks and 126 stations have been affected. The war has also taken a heavy toll on civil aviation, with 19 out of 35 airfields damaged, and several ports targeted by missile attacks. Indirect losses amount to $40.7bn, with substantial reconstruction needs reaching $73.7bn.

The energy sector has faced direct damages of $9bn, primarily due to Russia's attacks on electricity production, transmission, and distribution. The continued assaults have disrupted power supply systems, exacerbating the nation's energy crisis.

Utilities, including district heating infrastructure, water supply, sewage, and waste management, have suffered direct damages totalling $4.5bn. Damage to critical facilities such as heating stations, water treatment plants, and sewage systems has left many areas without adequate access to essential services. Indirect losses in this sector amount to $11.6bn, with reconstruction needs estimated at $11.1bn.

The digital infrastructure has also been severely impacted, with damages reaching $500mn. The destruction of communication networks has disrupted access to essential services, with many operators of electronic communications affected by the war. Indirect losses due to reduced access to communication services stand at $2.6bn, with reconstruction costs projected at $4.7bn.

Commerce and industry

The productive sector, encompassing commerce and industry, agriculture, and finance, has also been severely affected by the conflict. Enterprises have incurred direct damages of $13.1bn, with the metallurgy sector bearing the brunt of the destruction. Large and medium-sized companies, as well as countless small businesses, have been damaged or destroyed, leading to substantial economic losses. Indirect losses in this sector amount to $173.2bn. Reconstruction needs to stand at $67.5bn.

The agricultural sector has faced direct damages of $13.2bn, with losses extending to agricultural machinery, grain storage facilities, and livestock farming. Indirect losses, however, far exceed direct damages, reaching $70.5bn. Reduced crop production and disruptions to exports have contributed to the sector's woes, underscoring the urgent need for reconstruction efforts totalling $66.8bn.

Direct losses in the financial sector amount to $44mn, with banks bearing the brunt of the impact. Indirect costs, however, are much higher, totalling $5.7bn, driven primarily by credit risk. Reconstruction needs in the financial sector stand at $2.3bn.

The environmental impact of the conflict is immense, with widespread pollution and contamination posing significant challenges for reconstruction. With extensive mining of Ukraine's territory and environmental pollution threatening critical ecosystems, the estimated cost of demining and environmental restoration stands at $34.6bn.

The situation today

Despite robust political commitment among Ukraine’s Western allies to reconstruction and recovery, the CEPA report highlights a concerning gap in material support. Western governments, intergovernmental organisations, and international financial institutions have thus far allocated just under $80bn to Ukraine’s postwar recovery—a fraction of what will be needed.

With Russia's war on Ukraine still ongoing, the CEPA authors stress the urgent need to initiate recovery planning. This is crucial not only to bolster Ukraine’s resilience during the conflict but also to kickstart robust and durable post-conflict reconstruction and ensure integration into the EU.

The head of the International Monetary Fund (IMF) has affirmed that Ukraine's external financing needs for the current year stand at $42bn. Expressing confidence in meeting these requirements, she highlighted the significant support pledged by international partners.

Ukraine's agreement with the IMF on the Extended Fund Facility (EFF) program, approved in March 2023, is a cornerstone of its financial stability efforts. This year alone, IMF support is expected to exceed $5bn.

In a separate development, the private financing arm of the World Bank has announced plans to invest $1.9bn in projects in Ukraine over the next 18 months.

Meanwhile, Ukraine's military expenditures have soared, reflecting the urgent need to bolster its defence capabilities in the face of ongoing conflict. Military spending in 2023 surged by 51% to $64.8bn, representing 34% of GDP. This increase has propelled Ukraine into the top ten countries globally in terms of defence expenditures for the first time in history.

Going forward

The report emphasises that Ukraine's budget requires foreign assistance of $40bn per year to maintain core government functions. Given the importance of political stability on the European continent, the authors argue that there is no time to waste in addressing these pressing needs.

While formal international discussions on Ukrainian recovery have focused on assessing damage and addressing immediate needs, the report warns that current funding falls short of what is required. Estimates suggest that the cost of reconstruction could range from $486bn to $1 trillion.

While the CEPA report’s authors advise seizing Russia’s nearly $300bn in frozen Central Bank reserves, the likelihood of that happening remains highly uncertain for political and financial stability reasons. Hence the question logically arises: if Western governments, NGOs and global financial institutions have already committed $76bn, as the CEPA report’s authors claim, where will the remaining $410-$924bn of aid come from?

Despite the large figures involved, historical comparisons offer perspective. The United States, after World War II, committed $13.3bn to the Marshall Plan over three years—an amount equivalent to 1.6% of US GDP per year at the time. In contrast, the current commitment to Ukraine’s recovery represents only 0.15% of combined GDP.

As Ukraine’s reconstruction is a multi-decade project, with disbursements occurring over an extended period, the actual financial burden per year is expected to be even smaller. Nonetheless, the report urges swift and substantial action to address the immense challenges facing Ukraine's recovery and reconstruction efforts.