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Policy Contribution

Ukraine’s unfinished reform agenda

This Policy Contribution analyses the Ukrainian economic, institutional and political reforms of 2014-17 in terms of their sustainability and completeness, and evaluates what remains to be done. Compared to previous attempts, the current reform round has proved more successful and some politically difficult decisions have been taken (for example, the elimination of gas subsidies), but it remains incomplete in many important areas

By: Date: September 27, 2017 Topic: European Macroeconomics & Governance

Compared to previous attempts, especially those following the Orange Revolution in 2004, the current reform round in Ukraine (since 2014) has proved more successful. Some politically difficult decisions have been taken, such as the elimination of gas subsidies and the restructuring of the banking system. But reform remains incomplete in many important areas, such as local and regional self-government, public administration, the judiciary, law enforcement agencies, the energy sector and infrastructure, the pension system, privatisation and land ownership.

Since near-disaster in February 2015, Ukraine’s macroeconomic situation has stabilised. The economy stopped declining in 2016. However, macroeconomic stability remains fragile and the recovery of 2016-17 looks rather weak given the scale of the previous decline.

The window of political opportunity created by regime change and the mobilisation against external aggression in 2014-15 has not been used effectively as a springboard for reforming the dysfunctional Ukrainian economy and state. The window of opportunity now seems to be closing as Ukraine approaches a new electoral cycle in 2018-19.

The external players, in particular, the International Monetary Fund, the European Union and the United States, have provided Ukraine with a substantial balance-of-payments and budgetary support, along with technical assistance. In addition, the EU opened its markets to Ukrainian exports and granted visa-free travel to Ukrainian citizens. However, the macroeconomic assumptions behind the IMF programmes have been too optimistic, and the IMF and the EU have not always set the right reform priorities.

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