My first visit to Ukraine, as the World Bank Vice President for Europe and Central Asia, comes at a momentous time. The economic crisis is deepening and geopolitical tensions are high. At the same time, Ukrainians are holding their government to high standards by demanding good governance, stronger growth, more and better jobs, improved delivery of services, and higher standards of living comparable to those in Europe. To meet these demands from its people, the Ukrainian authorities need to accelerate reforms so that all Ukrainians – not just a select few – see tangible benefits.
At the outset, I would like to commend the authorities for taking steps to stabilize the macroeconomic situation in a difficult global environment. Large macroeconomic imbalances have built up over several years due to lack of reforms. The Government is making efforts to contain fiscal and quasi-fiscal deficits even when the situation in the east is making revenue collection difficult and forcing increased spending. Maintaining a tight fiscal stance – while ensuring that the poor are protected and public services are not interrupted – will be important going forward. The decision by the National Bank of Ukraine to move to a flexible exchange rate policy will help restore competitiveness and rebuild foreign exchange reserves.
It is encouraging to see that the authorities are undertaking long-delayed structural reforms. As the weakening Hryvnia affects the banking sector, the authorities are taking measures to restore confidence. To promote more efficient use of public funds and to lower corruption, the Parliament has adopted a new procurement law that reduces exemptions from competitive procurement. The authorities have taken steps to lower costs of doing business by enacting laws that ease business and property registration and reduce the number of permits needed. We expect that these reforms will help stimulate investment and improve Ukraine’s competitiveness. By abolishing the land bank, the Government has reduced potential corruption and distortions in the agriculture sector. Steps to raise residential gas and district heating tariffs have helped to reduce the fiscal deficit, increase efficiency in the sector and improve service delivery. The government has introduced a more targeted social assistance program to mitigate the impact of these increases. Authorities have also taken action to strengthen the financial safety net in order to maintain investor confidence.
But more needs to be done and there are no easy choices. Measures to maintain macroeconomic and financial stability clearly need to come first. Equally important are measures to fight corruption and improve governance to help enhance efficiency of public spending, increase public trust in the government, improve public service delivery, and sustain unprecedented assistance from international partners. Other key priorities include restructuring of the gas sector and comprehensive reform to streamline business regulation. In all of these reforms, implementation will be crucial for all Ukrainians to feel tangible benefits. In addition, the authorities need to communicate frequently and clearly to the people why these reforms are necessary.
I cannot stress enough the importance of ensuring that the social burden of reforms be shared fairly and especially by those who can afford it the most. The much-needed economic adjustment will be difficult in the short run, but will underpin growth in the medium to long term. It is important to ensure that the short-term negative impact of these adjustments does not fall mainly on the poor and the middle class, while leaving the more prosperous groups in the society unaffected and high-level corruption unaddressed. It is therefore critical that the reforms be implemented in a manner that ensures a balanced burden sharing. This can be done through decisive steps to curb corruption and close loopholes for tax evasion and avoidance by the rich. Strengthening the social safety nets will also help to cushion the impact on the poor and vulnerable. Finally, effective improvements in the investment climate could lay the foundation for sustainable growth and jobs for all Ukrainians.
I understand that risks facing Ukraine are unprecedented. The vast reform agenda, high expectations of the people, and geopolitical tensions would severely test the capacity of any government to carry out such a demanding program of critical reforms. Vested interests – lying dormant in recent months – are resurfacing. Faced with competing urgent challenges, Ukraine’s government needs to proceed with unity, clear focus, and determination. Ultimately, the best way to mitigate risks is to undertake a vast but critical reform program that will make Ukraine’s economy stronger, more competitive and more resilient to both external and internal shocks.
As Ukraine’s long-term development partner, I would like to assure all Ukrainians that the World Bank Group stands ready to support them in their quest for growth, jobs, and a better life. As part of this, the World Bank Group has pledged to provide US$3.5 billion in 2014, of which US$2.5 billion has already been made available. The challenges confronting Ukraine are daunting but I also believe that people are ready for change – as long as reforms bring tangible benefits to all.
The author is Laura Tuck, World Bank Vice President for Europe and Central Asia
