Innovative finance can help Ukraine rebuild better and quicker
Buildings under construction in Ivano-Frankivsk, Ukraine
Outcomes-based contracting could have major benefits in fostering effective reconstruction across the country.
By Victoria Walsh, Louise Savell, and Peter Nicholas
The international community is committed to helping Ukraine recover from the devastation of the war with Russia, both now and when the war is over. It is a daunting challenge with already a large financing shortfall for a wide range of urgent needs, with the World Bank estimating £411 billion in reconstruction costs. But there is a missing piece of the funding puzzle: innovative finance.
We have been looking at ways that innovative finance can help Ukraine rebuild quickly, efficiently, and thoughtfully, with an emphasis on building back better, for example through a transition to a green, digital, and inclusive economy.
Outcomes-based contracting could have major benefits in fostering effective reconstruction. It links payments to the achievement of measurable results, rather than requiring implementation of a pre-defined plan, and thus incentivises flexible, adaptive implementation that is focused on goals rather than means. It has similarities to results-based financing, but with a heightened emphasis on achieving independently verified benefits at the end user level. We see three areas where it could play a particularly useful role.
1. Land mine clearance and investment in renewal
Mine clearance is a prerequisite for much of Ukraine’s reconstruction. But worldwide there has typically been little coordination between the contracting of clearance and post-clearance activities, to the detriment of economic and social recovery. Outcomes-based contracting can help by linking payments for a package of mine clearance and post clearance recovery to measurable social, environmental and economic benefits on the demined land and its environs. This approach is being successfully applied in Cambodia, without affecting the costs or speed of design.
2. Front-loading facility
The large-scale financing Ukraine needs for mine clearance will not be available immediately. One promising solution is a front-loading facility, building on the highly successful model of the International Finance Facility for Immunisation. Donor pledges stretching years into the future would be securitised through bond issuance, allowing those pledges to be turned into immediately available funding for mine clearance and recovery. These benefits could be further enhanced by adopting an outcomes-based approach, with payments under the front-loading facility made at least in part against verified end-results. And once this approach has been successfully established for mine clearance, equivalent front-loading mechanisms could be harnessed to finance other reconstruction needs.
3. Community-driven development
Rebuilding the social fabric of Ukraine requires that reconstruction needs be tightly linked to social and environmental objectives. These linkages can be promoted by community driven development models, which seek to empower residents to shape the design and implementation of reconstruction in their locale. Combining community driven models and outcomes-based approaches would have added advantages, empowering communities to feed into the planning, design and implementation of reconstruction. Transparency efforts could also be furthered, with linkages between a project’s funding and community feedback on its benefits facilitating better monitoring of progress towards social and environmental goals.
While careful thought will need to be given to defining, measuring and attributing outcomes, we believe potential challenges can be mitigated through robust design and implementation, including the use of experienced independent observers to monitor community-driven development and outcomes verification.