Rapid Post-War Recovery: Is It Possible in Ukraine?

Due to the war, Ukraine has suffered substantial destruction and losses. After its end, the country will need to rebuild and grow rapidly. In the post-war period, the pace of growth will be not only a matter of improving citizens’ well-being but also a guarantee of preserving statehood: a strong national army will remain Ukraine’s best security guarantee, and the existence of such an army is impossible without a strong economy (as demonstrated by confrontations such as the United States vs. the USSR or Israel vs. Iran).

Post-war periods and episodes of structural economic transformation in the 20th and 21st centuries show that economies which recovered quickly and entered a trajectory of sustainable growth relied on macro-financial stability, support for investment and business lending, the development of capital markets and long-term funding and institutional predictability. Ukraine needs precisely this model—a combination of stability and growth stimulation, without losing control over inflation and debt dynamics.

Price stability as a prerequisite for recovery

Lessons: Germany, Japan, South Korea, Poland

Although this list of countries may appear quite heterogeneous, let us consider them through the lens of macroeconomic stability. Germany and Japan were industrially developed countries even before World War II and managed to quickly restore their status after defeat. This was made possible by the presence of a powerful external partner—the United States—and the rapid construction or restoration of reliable institutions. South Korea traveled the path from a war-ravaged agrarian country with per-capita GDP at the level of African states to the status of a developed economy within two generations. Poland, following the period of Soviet occupation, unlike other post-Soviet countries, preserved the rudiments of private entrepreneurship, private land ownership and the cementing role of the church in social life. After several years of painful transformation, these countries managed to secure a relatively long period of low and stable inflation.

Low and predictable inflation is the key to affordable credit, increased investment activity and the revitalization of economic growth.

For the National Bank of Ukraine (NBU), this implies the need to continue moving toward a policy of full-fledged inflation targeting, clear communication of interest-rate policy guidance and the expansion of analytical tools to assess the expectations of businesses and households.

Supporting long-term investment through the financial system

Lessons: South Korea, Taiwan, Israel

Post-war recovery requires long-term and relatively cheap resources. There are several possible ways to attract such funds: external investment and/or domestic sources of financing. South Korea and Taiwan provide examples of how a particular cultural code—shaped by the prevalence of Buddhism and Confucianism—enables households to favor savings (future consumption) even under relatively low income. Israel managed to ensure the effective functioning of financial markets (including long-term capital) despite constant military threats and confrontation with hostile neighboring states. Key instruments included infrastructure bonds, loan guarantees (including external guarantees), the development of stock market infrastructure and investment development banks.

For Ukraine, this will require the development of a market for long-term hryvnia instruments (including the creation of a stock market and a transition to a funded pension system), the adaptation of prudential requirements for infrastructure lending, the creation of conditions for activating public-private partnerships and expanded bank financing of reconstruction projects.

Institutional trust and currency stability

Lessons: Italy, France, Poland, Israel

Thanks to the Marshall Plan and the security umbrella provided by NATO, Western European countries were able to focus on rebuilding destroyed infrastructure and industry while strengthening institutions.

As for the role of central banks in this process, economic recovery is impossible without predictability: transparent interest-rate policy, phased liberalization of the foreign exchange market and an exchange-rate policy that supports export competitiveness.

For Ukraine, it is important to combine relative exchange-rate stability with currency-policy flexibility, strengthen the resilience of the financial sector to potential shocks and reduce the scope of uncertainty faced by economic agents.

Growth-friendly monetary policy

Global experience shows that macroeconomic stability does not guarantee economic growth; however, its absence turns sustainable growth into an almost unattainable task.

Already today, the NBU can:

• continue a gradual transition toward full-fledged inflation targeting;
• provide special capital-movement conditions for new foreign direct investment and reconstruction projects;
• promote the development of capital markets and mortgage lending;
• develop a macroprudential framework for SMEs and infrastructure projects.

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Price stability, long-term investment and institutional trust are the keys to rapid post-war recovery. Ukraine has a unique window of opportunity for an economic leap within a single generation.

We deliberately leave outside the scope of this analysis the obvious elephant in the room—the need to secure a sustainable peace in Ukraine, without which any forecasts may not be worth the paper they are written on. For the purposes of further analysis, we assume that this condition will be ensured in the short- or medium-term perspective.

Even under such circumstances, a Ukrainian economic miracle cannot emerge out of thin air. International experience shows that all countries that have succeeded in achieving rapid growth in living standards did so by leveraging their existing advantages. For example, Ireland benefited from being an English-speaking country with a favorable geographic location (amid intensified transatlantic interaction) and inexpensive labor; South Korea relied on a strong Confucian tradition (disciplined labor force and emphasis on education) and a reliable external partner (the United States); Poland preserved certain elements of a market economy even during de facto Soviet occupation and was a relatively homogeneous political nation (owing to the continued role of the church in social life) at the moment of the Soviet Union’s collapse.

Ukraine’s potential post-war economic leap may consist of three stages

Short-term: rapid reconstruction. Post-war recovery will focus on rebuilding destroyed infrastructure, restoring energy capacities, restructuring logistics and reviving damaged production facilities. At first glance, this stage appears the simplest—damage assessments from the full-scale invasion conducted a year ago already exceeded $500 billion (around 250% of GDP in 2025). However, two important caveats must be noted. First, for four consecutive years the budget deficit has amounted to roughly 25% of GDP, but after the end of hostilities this extraordinary fiscal impulse will begin to shrink rapidly. This will require a swift replacement of the fiscal impulse with private-sector investment or consumption amounting to at least 10 percent of GDP during the first post-war year. At present, such a rapid “substitution” of growth drivers does not appear inevitable. Second, external funding will be the key source of reconstruction financing. International partners will demand transparent and efficient use of potentially allocated resources. Given Ukraine’s weak institutional capacity to deploy these resources effectively, “domestic disillusionment”—including as a focal point for criticism by political opponents—may begin to grow rapidly within donor countries.

Medium-term: leveraging existing resources and laying the foundations for new sectors. While the mere presence of natural resources does not in itself guarantee economic growth (as demonstrated by countries in Africa and South America), it can significantly simplify the task (Panama, Canada, Australia, South Africa, Azerbaijan) or provide a crucial resource for structural economic transformation (Norway, the Netherlands, the UAE, Qatar, Saudi Arabia). In the medium term, Ukraine should simplify access for foreign capital—which also brings technologies and business practices—to its existing natural resources, including land and mineral deposits. At the same time, in all other sectors (including energy, defense-industrial complex and small and medium-sized enterprises), maximum support for competition and the elimination of existing administrative barriers and constraints must be ensured. It is precisely at this stage that Ukraine will gain the opportunity to realize the potential of strong horizontal ties within society—provided that artificial barriers to doing business are removed and a level playing field is enforced, economic agents themselves will determine the most promising sectors of the Ukrainian economy.

Long-term: targeted economic policy in support of sectors selected at the second stage. Such a policy entails both potential benefits and risks. A benchmark example of potential benefits is South Korea’s policy in the 1970s–1980s, aimed not only at creating new enterprises but entire industries (heavy mechanical engineering, chemical industry, consumer electronics, etc). However, even under a favorable growth scenario (real GDP growth rates of around 7 percent in the medium term), Ukraine will remain a small open economy, critically dependent on integration into global trade. Any measures to support priority sectors will require elements of a protectionist policy, which may have a negative impact on the quality and availability of goods and services without guaranteeing future economic returns. A vivid example of such a policy is India’s automotive industry, which remains “competitive” in the domestic market only thanks to 60–100 percent import tariffs on foreign cars.