bne IntelliNews – COMMENTARY: Sustainable Sovereign Bonds Meet Financing Needs of Ukraine Refugee Crisis
Ukraine’s war displacement with 7 million refugees, and even more internal flows, is the largest in the world, according to the UN refugee agency. In three months, the total surpassed Syria, Venezuela, Afghanistan and South Sudan in more than a decade. One hundred million people are now on the run from conflicts and natural disasters, with Europe a source for the first time since the fighting in the Balkans in the 1990s. During this episode, around 20% of arrivals are permanently resettled in neighboring states after applying for asylum in a long and uncertain process.
Ukrainians, on the other hand, benefited from comprehensive European protection for two years under a common policy. The influx has gone a long way, including 50,000 to Greece, which continues to illegally push back by land and sea Middle Eastern entrants via Turkey, according to human rights groups. The main host is Poland, which has a long history of labor migration and has absorbed more than half of the refugees, nearly 4.5 million, of whom 2.5 million remain. The population of Warsaw and other major cities is up around 20%, with housing 40% more expensive amid a two-year exacerbated shortage for the property sector. 500,000 families temporarily opened their homes after the government offered a modest stipend, and it created a Ministry of Social Integration to handle longer-term budget and political accountability. Romania, Hungary, Slovakia and Moldova each received between 700,000 and 900,000 under their own fiscal power, with help from Brussels following traditional government aid and raising supranational bond funds.
The EU estimates the total cost of the frontline state for the first year at a baseline of 30 billion euros, or more than 5,000 euros per refugee, and it has taken money from funds migration fund and issued a €1 billion social impact bond, an instrument also used for health purposes during the pandemic. The hosts otherwise rushed for the money that ran out after the initial wave. The Mayor of Warsaw made an official and private fundraising tour of the United States. Moldova has requested an additional $200 million to its existing IMF program. And the search for Bulgaria proved futile because it stopped reimbursing hotels hosting Ukrainians.
Capital markets have not been tried as a large-scale, recurrent source of funding, although Poland, Hungary and Romania are prime destinations and already tap into normal local and external debt markets. Sovereign bond issuance is now a fifth in the green and socially sustainable category, where displacement is an overlooked natural adjustment. An explicit UN Sustainable Development Goal for 2030 is orderly migration, and its Compact for Refugees calls for sweeping private funding solutions to individual crises and the refugee agency’s chronic multibillion-dollar budget shortfall. .
Poland, with the highest concentration of refugees and the most sophisticated capital market in the region, is the logical testing ground for refugee bonds, and municipal and national pilots could be rolled out simultaneously. The impact collective Refugee Investment Network, the International Rescue Committee’s innovative finance lab, and ESG-leaning U.S. family offices have expressed interest in a three-phase, six-month accelerated development plan. The first would be to work with the Polish government, banks and institutional investors to solicit the views of European and global official lenders, traditional and impact private fund managers and humanitarian aid agencies. A detailed concept paper would then be prepared outlining instrument options and monitoring features, including guarantees from multilateral and bilateral sources, and third-party auditing of revenue use to ensure best practices in revenue collection. education and employment, and recovering cash flow from housing and utilities for debt. service. The final step would be the preparation of the prospectus and placement of the issue by a professional legal underwriting team willing to waive the entire commercial fee for public purposes, and in exchange for the establishment of a franchise advantage first come.
Until the end of May, Poland saw the main inflows of local bonds from non-residents of Europe at $2.5 billion, as the central bank is on a tighter rate path and has also hinted at monetary intervention to stifle double-digit inflation. Apart from rising food and fuel prices, consumption continues to run at a blistering pace, with retail sales up 15% per month thanks to increased demand from refugees. The government has finally reached a compromise with Brussels over an alleged legal package to ensure the release of EU recovery funds which can be partially used for Ukrainian local community projects, in particular the transformation of green energy given heavy dependence on coal. He strained relations with banks by offering mortgage holders a repayment holiday during the monetary tightening cycle until next year, which sent stock quotes plummeting by 30%. The move came after court rulings ordering compensation for Swiss franc-denominated borrowings after the 2008 crisis, and bad blood lingers that could be resolved by a cooperative effort on replacement durable bonds.
Romania also raised rates to a benchmark of 3.75%, very negative in real terms, with inflation at 14.5%, expected growth at 3% and a current account deficit of 8%/GDP. . The currency fell 8% against the dollar until mid-June, when the Brussels bulletin on euro entry put it at the back of the pack with the lingering shadow of the procedure of excessive deficit. It covered the cost of nearly one million Ukrainians by allocating €100 million from unused EU cohesion funds and €18 million from its own budget. ESG bonds on the stock exchange caught on with two major banks in June floating green versions at 9%, a modest premium to the government’s standard five-year issue. Both Romania and Poland are poised to experiment with groundbreaking refugee instruments that build on market strengths and chart a new course of sustainable bond labeling.
Gary Kleiman is a senior partner at Kleiman Intl Consultants, Inc.