Nine months into war with Russia, 7.5mn Ukraine refugees have fled to Europe by the UN’s latest count, with the harder to track internally displaced population approaching that number, as Moscow formally annexes a swathe in the east after dubious referenda. Poland has taken in the most at 1.5mn after 6.5mn border crossings, and tiny Moldova and Slovakia each host almost 100,000.
While private donations in kind and cash amounted to several billion dollars at the start of the exodus, these have since faded with so-called welcome fatigue and have always paled against the size of the international community’s budget and humanitarian aid alongside military support, with pledges at $35bn this year. Only around half had been delivered as of the end-September. Of the US and EU’s roughly equal split of $25bn, two-thirds and one-fifth respectively had reached Kyiv.
From February to August Ukraine had already paid out around $500mn more than it raised in domestic debt for military and social purposes, with the central bank stuck buying special war bonds in a recipe for quasi-fiscal finance it would not otherwise tolerate. Traditional sovereign external bond access was suspended with a two-year formal payment interruption to save $2bn, even as creditors baulked at the same delay to state-owned companies like Naftogaz with healthier separate balance sheets. Bondholders granted the standstill with no other option on the table to swap into a performing instrument, or to invest in frontline state refugee reception and integration other than through indirect traditional government bonds. Tailored offerings for internal displacement and Poland, especially focused on housing as the outstanding priority, can bring in billions of dollars in commercial fresh money from both conventional and ESG/impact-oriented fund managers. Steps are already underway to line up the public, private and relief organisation members constituting a deal team so that a winter rollout is feasible.
Economists put the first year costs of shelter and other refugee help at up to $10,000 per person, and unlike the previous Syrian wave in 2015-16 early payback is on the horizon. EU labour markets are in shortage, and Ukrainian arrivals are mostly women with an advanced education. Poland’s central bank conducted a survey of 3,000, finding the majority “well qualified” with professional backgrounds in education, health and management. Polish language ability was a roadblock, with only 5% claiming fluency, as was the lack of available childcare. Construction jobs were the most open as male citizens returned home to fight the war, but otherwise licence and training requirements were often waived as 450,000 refugees were hired as of August, according to the labour ministry. Of the 750,000 school age children about half can be accommodated in the classroom this academic year, with the bulk covered through supplemental remote learning networks.
However, the early days of generosity when private citizens donated an estimated $2bn have flipped into a funding squeeze, with the government cutting the allowance for families hosting refugees and allocating Ukrainian mothers only $100 per child monthly benefit. Officials initially earmarked $3.5bn in aid that has since risen another $2bn in projections, to the equivalent of 1% of GDP. Recent polls indicate 20% desire to return over the winter, and research shows that up to 50% would stay even after an initial end to the conflict. The influx is 8% of Poland’s population, with city concentrations from less than 15% in Warsaw to 25-35% in Krakow and Gdansk. Residential housing was already badly crimped as of last year, with the relevant ministry putting the shortfall at 650,000 units, the UN at 2mn and Bank Pekao at 4mn. The government has offered to subsidise 50% of the price for municipalities to buy office buildings, 15% vacant since the pandemic, to redress the crunch. It vows there will be affordable accommodation for the refugees, while preparing relocations to small towns where space and jobs are unfilled.
The World Bank’s preliminary June $350bn physical damage calculation prepared for Ukraine’s October reconstruction conference also had housing at the top of the list at $70bn, or 20% of the total. On the summary ledger it was equal to the loss of transport infrastructure, and unsurprisingly an earlier March residential destruction estimate of $20bn was half in Kharkiv and Donetsk. The lack of shelter compounds the misery of the internally displaced, since before the war they benefited from reliable access to a social safety net. One-quarter received a retirement pension, and severe poverty defined at $5 per day income was infrequent. The rate now is expected to reach 20% this year, and a study by the International Organisation for Migration had 60% of IDPs earning no money, and if they did, it was 20% less than pre-conflict. Freezing temperatures begin mid-October, and for properties still standing windows and doors are missing from Russian attacks and looting.
In response, volunteers have begun work on sovereign, municipal and project displacement bonds for Ukraine and Poland adapted from standard emerging and frontier market templates. They are designed to build rapid installation green housing and harness cash flows for servicing. A UK-based investment bank and vendor have come forward to explore transaction structures with relevant authorities, the International Rescue Committee is on board for independent verification, and the World Bank and other official lenders will be approached on credit guarantees at the October annual meeting. Pilots can roll out over the winter season and help unlock the private capital markets arsenal missing in the financial war strategy.