Reintegration Costs of Donbas: $22 Billion or More?

The new government of Volodymyr Zelensky aims to reimagine the attempts to end the war in Donbas. However, the factual basis for the reintegration plans remains vague. 

The report estimates the lower bound of reconstruction costs at USD 21.7 bn. This is equivalent to one-third of Ukraine’s state revenues in 2019.

The report underlines several channels through which the costs were propagated: direct damage, capital depreciation, environmental problems, and humanitarian issues.

Armed skirmishes themselves are not the largest contributors to the economic setback of the region. 42% of the total costs are composed of uncovered depreciation of fixed assets and liquidation of coal mines. Therefore, to reboot the economy of Donbas the government needs to develop a full-scale program to restore the basic economic institutions: markets and state capacity. The proposed plan outlines four critical targets:

The core part of the report raises awareness about the humanitarian issues and the approximate scale of efforts required to bring the local economy back on track. Those who oppose the negotiation process should be aware that those humanitarian issues are the opportunity costs of peace, which Donbas citizens carry on their shoulders every day. 

The other part highlights the fundamental problems of the conflict resolution: the inability to credibly assure that the negotiation sides will stick to the agreements. The binding guarantees put on the state and ex-combatants at the highest possible legal level are critical in the peace negotiation process.

Read the full article.