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Ukraine: Reform Progress and the Way Forward
- 1. 78th East Jour Fix of the ONB and WiiW “Ukraine-Progress of Reforms and Challenges Ahead” February, 26, 2016 Vienna, Austria Reform Progress and the Way Forward Olena Bilan
- 2. 2 Reform Agenda • After years of mismanagement, nearly every aspect of economic and political life in Ukraine needs reform • The key question is not whether the country must implement reforms but where the authorities should start the process
- 3. 3 Most Pressing Areas Persistent Corruption Inefficient Energy Sector Excessive Regulation Civil Service Bureaucracy Badly Managed Financial Sector Expert Opinion Poll
- 4. 1.5 0.4 2.6 2.2 2.1 0.4 1.7 1.2 1.6 1.2 -5.0 -4.0 -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Acceptable pace of reforms - 4 - Progress in Reforming Legislation… iMoRe
- 5. 1.2 1.5 1.0 1.2 1.3 0.8 -5 -4 -3 -2 -1 0 1 2 3 4 5 iMoRe Governance & Anti-corruption Public Finance Financial Sector Business Regulation Energy Independence - 5 - …in Key Economic Areas Average score since end-2014
- 6. - 6 - Successfully Implemented Reforms Banking Sector Energy Sector Public Procurement Patrol Police
- 7. - 7 - Banking Sector Reform: Key Steps Clean-up Ownership Transparency Related Party Lending NBU Independence Deposit Guarantee Fund restructuring IFRS 67 out of 180 banks (25% of system assets) recognized as problematic Legal loopholes closed, NBU authorized to punish violators Enhanced criteria, tighter control, Big-4 audit for top-20 banks, RPL reduction plan
- 8. - 8 - Banking Sector Reform: Impact More Stable System More Transparent System Efficient redistribution of resources Support economic growth
- 9. - 9 - Energy Sector Reform: Key Steps •Household gas prices hiked 3-5 x in Apr-2015 •To reach import price parity by 2017 •Naftogaz corporate governance •Electricity tariffs hike •Phase-out pf price discounts on oil sold by state owned companies •Opens sector to competition •Brings regulation in line with EU Third Energy Package • Import diversi- fication Gas Market Law Gas Tariffs Other 92% 75% 37% 0 10 20 30 40 2013 2014 2015 Gas Imports (bcm) EU Russia
- 10. - 10 - Energy Sector Reform: Impact Lower dependence on Russia Less corruption in gas and oil sectors Smaller burden on state budget Energy-savings technologies
- 11. - 11 - E-Procurement: Key Steps Pilot Project In Feb-2015 Economy Ministry partnered with a group of volunteers to launch pilot e-procurement project ProZorro.org 12-18% price reduction EUR 20m savings Access to WTO procurement market Domestic legislation harmonized with with WTO rules Local businesses can access $1.7trln WTO public procurement market in 2016 New legislation New public procurement law requires expanding pilot project to all state institutions by Aug-2016
- 12. - 12 - E-Procurement: Impact 3.0% GDP annual savings Lower corruption More Competition Exports promotion Access to WTO public procurement market
- 13. - 13 - New Patrol Police Key fact • New people selected by rigorous testing • Three-month training, incl. by American instructors • Decent salary (3 times that of old “militsia”) • Change in philosophy: protection, not punishment Achievements • Brand new institution that enjoys strong public support: 3rd most trusted after army and local authorities • Perceived to be least corrupt state agency, while old “militsia” was perceived to be the most corrupt
- 14. - 14 - Way Forward Judicial system and prosecutor office • Most corrupt institution based on popular opinion • The major bottleneck for investment and business development Civil service • New reform-minded people at the top level only • Most of the civil servants are incompetent/corrupt and low- paid people • Overlapping and redundant functions State-Owned Enterprises • One of the major sources of corruption and waste of state funds • Reform and privatization stalled by vested interests