80170 Ukraine: An Overview ECA PEG BRIEF SERIES 2012 PEG BRIEF: UKRAINE Since declaring independence, Ukraine has undergone many changes in the political landscape, resulting in greater democratization, expanded freedom of media and more active political discourse. The new administration in 2010 has outlined an ambitious reform agenda, however faces challenges regarding governance and democracy. Recent changes, including overturning constitutional amendments of 2004 may CONTENTS: have strong impacts on governance and the future path of Ukraine, as it Overview: 1 appears to become closer to Russia while concurrently deepening Basic Governance Facts: 1 integration with the European Union. Democratization, institutional Governance at-a-Glance: 2 capacity, corruption, and human rights remain challenges in Ukraine. Political Economy Background: 5 The presidential program emphasizes strengthening institutions, Key Governance Challenges: 6 imposing discipline on the bureaucracy, and reining in corruption. The World Bank Strategy 2012-2016 Country Partnership Strategy aims to assist Ukraine in and Activities: 8 overcoming implementation bottlenecks identified in the Presidential Notes: 10 Program and support efforts to improve relations with civil society and business; improve government accountability and effectiveness, and increase public trust. Projects focus on public finance and other public sector reforms, with an eye to improve governance and reduce corruption, as well as infrastructure development. This brief summarizes Ukraine’s performance on various governance indicators and summarizes recent developments in political economy along with a discussion of challenges identified by Bank Staff. BASIC GOVERNANCE FACTS Government Type: Table 1: Rankings for Key Governance Indicators Ukraine is a democratic (Lower ranks indicate better performance) republic. EIU Doing Transparency Heritage WEF Global ICRG Democracy Business International Foundation Competitiveness Country Administrative Divisions: Index Index Corruption Index Index Risk Ukraine is a unitary state 2011 2012 Perceptions 2012 2011 Ranking with four levels of of (of 167 (of 183 Index (of 179 (of 142 countries) 2011 administrative countries) countries) 2011 countries) (of 140 (of 183 countries) governance: the countries) automomous Republic of 1 Ukraine 79 152 152 163 98 101 Crimea and 24 oblasts including 2 cities with FSU-N 118 97 139.5 131.3 73.3 78.5 oblast status-Kyiv and Average Sevastopol. Local EU-25 24.7 36.3 32.4 40.1 33.9 41.8 government is comprised Average of a dual system of state ECA 80.6 72.4 93.1 78.8 72.6 76.6 administration (heads are Average presidentially appointed) and local self government councils (with top officials 2 elected by the citizenry). village and township councils, although division of power between the central and Other administrative 3 local authorities is unclear, particularly regarding budget issues. divisions include raions, The Political Economy and Governance (PEG) Brief Series, developed by the governance team in ECSP4 and supported by the Governance Partnership Facility, aims to FOR WORLD BANK INTERNAL USE ONLY. PAGE 1 inform World Bank Country Teams on the governance, institutional, and political economy environment relevant to the World Bank work in all sectors. The Briefs are classified for INTERNAL USE ONLY and are not to be cited, publically disseminated nor circulated. The information in this Brief is current as of September 2012 and is to be updated annually. For more information, please contact Jana Kunicova or Kimberly Johns, ECSP4. Constitution: The first post-independence constitution was SECTION 1: GOVERNANCE AT A GLANCE adopted on June 28, 1996. The constitution was amended in 2004 to strengthen the roles of parliament and the Prime Ukraine has overcome a number of barriers since declaring Minister. However, the new administration of Yanukovych led independence from the Soviet Union. Economically, Ukraine to an effort to overturn these amendments in order to assert has rebounded since 2000, while the fluctuations in the more power back to the presidency. The 2004 amendments political environment have had mixed effects on governance were overturned in early 2010 as they were deemed indicators. This section provides an overview of these 4 unconstitutional by the Constitutional Court of Ukraine. indicators for Ukraine. Ukraine is now functioning under the 1996 constitution, and has reverted to the presidential system of government. Key Governance Indicators Executive Branch: • Democracy Index (EIU 2011) 79 out of 167 The Democracy Index of the Economist Intelligence Unit Head of State: President Viktor Yanukovych, elected on measures democracy via five categories (electoral process February 25, 2010. and pluralism; civil liberties; functioning of government; political participation; and political culture). Ukraine is Presidential Elections: The president is elected by popular 9 considered a “hybrid regime� by the EIU. Hybrid regimes per vote for a five-year term. The last election was held on the EIU have characteristics including widespread corruption, January 17, 2010 with a runoff election taking place on irregularities in elections, and other weaknesses in the February 7, 2010. The next elections are to be held in 2015. functioning of government. 10 Head of government: Prime Minister Mykola Azarov took • Global Integrity Index (GI 2011) Overall Score 64 office in March of 2010. The candidate for the office of Prime This score corresponds to an overall rating of “ weak�. Ukraine Minister is proposed by the president, and is approved by the earned a “strong� score of 83 of 100 for its legal framework, Supreme Council. 11 but a “very weak� 48 of 100 for implementation. Cabinet: Cabinet of Ministers are nominated by the president • Government Conflicts of Interest & Checks and Balances 5 and approved by the parliament. (Government Accountability) (GI 2011) 60 This indicator captures executive, legislative, and judicial Legislative Branch: accountability, asset disclosure requirements, auditing Ukraine has a unicameral Supreme Council (Verkhovna Rada) practices, and checks and balances across branches of consisting of 450 seats. Members are allocated on a government. Ukraine earns a “very weak� rating for this proportional basis to parties that earn 3% or more of the indicator. national electoral vote. Members serve five year terms. The last election was held on October 28, 2012, the next is to be • Doing Business (2012) 152 of 183 held in 2017. Ukraine fell 3 positions on Doing Business despite making reforms in four areas: starting a business, paying taxes, Major Political Parties: There are a number of political 12 6 enforcing contracts and resolving insolvency. Ukraine also parties in Ukraine, including the Party of Regions, which is initiated reforms making it more difficult to trade across the party of the president, Viktor Yanukovych. Other main borders. Ukraine still has work to do in the areas of paying parties represented in the parliament include: Fatherland st taxes (ranking 181 ), dealing with construction permits Party (Batkivshchyna- the former Bloc of Yulia Tymoshenko), th 13 (ranked 180th) and getting electricity (ranking 169 ). Ukrainian Democratic Alliance for Reform, the All Ukrainian Union “Svoboda�, the Communist Party of Ukraine, and • ICRG Country Risk Ranking (2011) 101 of 140 78 others. This indicator measures aspects of political, financial and economic risk. The score of 64.8 reflects a moderate risk Judicial Branch and Legal System: Ukraine has a four-level environment. judicial system consisting of local courts, appellate courts, high courts such as the High Administrative Court of Ukraine • Transparency International Corruption Perceptions Index and the High Arbitration Court of Ukraine, and a Supreme (2011) 152 of 180 Court. There is a judicial review of legal acts. Ukraine fell 18 rank positions from 2010, and falls below the ECA average on this indicator. • Freedom House Political Rights Index (2011) 4 out of 7 This indicator measures political freedoms based on an evaluation of the electoral process, pluralism and functioning 14 of government. Ukraine is rated as “partly free�. FOR WORLD BANK INTERNAL USE ONLY. PAGE 2 • Heritage Foundation Economic Freedom Rank (2012) 163 SUMMARY OF GOVERNANCE INDICATORS of 179 Ukraine Ukraine had an overall score of 46.1 which corresponds to a rating of “repressed�. From the previous year, Ukraine Governance Indicator (source, year) Score improved on freedom from corruption, labor freedom, monetary freedom and fiscal freedom. However, it declined Democracy Index (EIU 2011) 79 of 167 in 3 areas: business freedom, trade freedom and government Global Integrity Index (2011) 64 out of 100 15 spending. Government Conflicts of Interest & 60 out of 100 • Global Competitiveness Index (WEF 2011) 98 of 142 Checks and Balances (Government The Global Competitiveness Index captures 113 indicators Accountability) (GI 2011) impacting economic development and competitiveness. In Doing Business Rank (2012) 152 of 183 the global rankings, Ukraine is 98th which is below the ECA ICRG Country Risk Rating (2011) 101 of 140 average ranking. Transparency International Corruption 152 of 183 • Global Competitiveness Index Institutions Pillar Rank (WEF Perceptions Index (2011) 2011) 131 of 142 Freedom House Political Rights Index 4 out of 7 This indicator captures aspects of the roles and quality of (2011) institutions on competitiveness and growth, including costs of corruption and bureaucracy. Ukraine ranks below the ECA Heritage Foundation Index Rank (2012) 163 of 179 average rank of 84. WEF Global Competitiveness Index 98 of 142 (2011) • Bribe Frequency (BEEPS 2008) 27.3% Ukraine exceeds the ECA average of 12.8% on this indicator. WEF Global Competitiveness Index 131 of 142 Institutions Pillar (2011) • Bribes are Frequent in Dealing with Taxes (BEEPS 2008) Bribe Frequency (BEEPS 2008) 27.3% 25.5% Ukraine exceeds the ECA average of 8.6% on this indicator, Bribes are Frequent in Dealing with 25.5% and experienced a 45% increase over the 2005 value. Taxes (BEEPS 2008) Bribes are Frequent in Dealing with 13.2% • Bribes are Frequent in Dealing with Customs (BEEPS 2008) Customs (BEEPS 2008) 13.2% Ukraine exceeds the ECA average of 7.1% for this indicator, Bribes are Frequent in Dealing with 15.6% however, there was a 13% improvement over the 2005 value. Courts (BEEPS 2008) WJP Rule of Law Index: Limited 64 of 66 • Bribes are Frequent in Dealing with Courts (BEEPS 2008) Government Powers Rank (2011) 15.6% Ukraine has a higher value than the ECA average for bribery WJP Rule of Law Index: Open 53 of 66 in the judiciary (6.0%), and experienced a 10% increase over Government Rank (2011) the 2005 values. Rule of Law (WGI 2010) 25.1 out of 100 • Rule of Law Index: Limited Government Powers Rank (WJP Voice and Accountability (WGI 2010) 44.1 out of 100 2011) 64 of 66 Political Stability (WGI 2010) 42 out of 100 This indicator measures the extent to which those who govern are subject to law. It comprises the constitutional and Government Effectiveness (WGI 2010) 24.9 out of 100 institutional means by which government powers are limited, Regulatory Quality (WGI 2010) 32.5 out of 100 as well as nongovernmental checks on the government’s Control of Corruption (WGI 2010) 17.2 out of 100 power (such as a free and independent press). Ukraine was th ranked 64 of 66 countries. Statistical Capacity (2011) 89 out of 100 Open Budget Index (2010) 62 • Rule of Law Index: Open Government Rank (WJP 2011) 53 of 66 This indicator measures the extent to which laws and information are comprehensible and available to the public. rd Ukraine is ranked 53 of 66 countries. FOR WORLD BANK INTERNAL USE ONLY. PAGE 3 • Rule of Law (WGI 2010) 25.1 out of 100 Corruption Perceptions indicator value. Ukraine ranked in the 25th percentile on this indicator. This reflects limited confidence in the adherence to rules and • Statistical Capacity (2011) 89 out of 100 laws. For this indicator, Ukraine falls below the ECA average Ukraine exceeds the ECA average of 81 for this indicator. of 47.1. • Open Budget Index (2010) 62 • Voice and Accountability (WGI 2010) 44.1 out of 100 The Open Budget Index evaluates the type and quantity of Ukraine ranks in the 44th percentile on Voice and information that governments make available to the public Accountability, below the ECA average of 48.2. The press based on 7 key budget documents. The overall score of 62 enjoys relative freedom and there is generally little corresponds to a “significant� rating. government involvement in the press. However, in 2012, Ukraine improved on the Reporters Without Borders Index of Additional Indicators Press Freedom. Ukraine completed a Public Expenditure and Financial Accountability (PEFA) repeat Assessment in 2010, which • Political Stability (WGI 2010) 42 out of 100 followed on the previous PEFA results published in 2007. The nd recent results show that Ukraine is still performing well on Ukraine ranked in the 42 percentile on this indicator, below the ECA average of 47.7. budgetary issues, particularly on classification of the budget, comprehensiveness on information in budget documentation, Chart 1: World Governance Indicators (2010) timeliness of accounts reconciliation, and aggregate revenue Scores for Ukraine (0-lowest, 100-highest) out-turn compared to the original approved budget. In each of these areas Ukraine earned an “A� score. Over time, 51.2 57.1 Ukraine has slipped in the composition of expenditure 60 47.1 48.2 47.7 43.7 outturn and areas such as effectiveness of internal audit, but has improved in several key areas such as collection of tax 40 payments, and quality of in-year budget reports. The 2010 results also show work is needed in areas such as unreported 20 government operations, effectiveness of payroll controls, controls and competition in procurement as well as external 25.1 44.1 42 24.9 32.5 17.2 auditing. Projects undertaken by the World Bank since this 0 assessment target these issues. See Section 4 for more information. Summary: The above indicators show several correlations across values. Overall, the indicators show Ukraine is near or above the ECA average on aspects such as information provision, voice and accountability, political freedom, and freedom of the press, while below average on economic freedom, corruption, the Ukraine ECA Average ease of the business environment, and government effectiveness. The Open Budget Index and the 2010 PEFA results show that • Government Effectiveness (WGI 2010) 24.9 out of 100 budgeting (information availability, performance and This indicator captures perceptions of the quality of public processes) is good. However, the indicators show additional services, civil service, policy formulation and implementation improvements can be made particularly in the areas of tax and credibility of the government’s commitment to policies. administration and procurement. Ukraine falls below the ECA average. The recent political developments are captured in indicators • Regulatory Quality (WGI 2010) 32.5 out of 100 such as Political Stability and Government Effectiveness. Private sector development and increasing competitiveness is More on the recent political developments and how they may a priority for Ukraine (see next section) and it falls below the impact the performance of Ukraine on these government ECA average of 57.1. indicators is found in the next sections. • Control of Corruption (WGI 2010): 17.2 out of 100 th Ukraine only ranked in the 17 percentile for control of corruption, lower than ECA average of 43.7. Corruption is identified as an issue in Ukraine per Freedom House Nations in Transit and as shown by the Transparency International FOR WORLD BANK INTERNAL USE ONLY. PAGE 4 SECTION 2: POLITICAL ECONOMY BACKGROUND Consolidation of Power The transfer of power to Yanukovych in 2010 has resulted in significant political and institutional changes. The new There are several key political economy drivers in Ukraine Parliamentary coalition supports the president and now plays which help determine economic outcomes, particularly a more diminished role in legislation and governance. The democratization, geopolitical forces, and deeper integration constitutional amendments passed in 2004 which gave more with the European Union. This section provides a brief power to the parliament were overturned by the background of these issues. Constitutional Court of Ukraine in 2010. The result of this development is that power has now been re-asserted into the Background presidency. The impact on the governance indicators has yet Ukraine is a populous country with a large land mass situated to be measured; however, this system may adversely impact between Russia and the Eastern European members of the scores on Government Accountability as it changes the European Union. The services sector accounts for the system of checks and balances. greatest proportion of private sector employment – 65% in 16 2008 . Agriculture is also a key sector. When part of the The new administration and reform agenda may impact Soviet Union, Ukraine accounted for a quarter of all Soviet efforts to be more deeply integrated with the European 17 agricultural output. The agricultural sector is one area Union. Although the Yanukovych administration has voiced where reforms are targeted; however, it remains a sensitive desire to continue deepening relations with the European area politically. Union, the trajectory towards this goal is uncertain. Since declaring independence from the Soviet Union in 1991, The last parliamentary election, held in October 2012 was Ukraine has undergone many economic and political changes. watched closely as opinion polls pointed to a substantial loss Economically, Ukraine suffered one of the steepest declines of popularity for the PoR during 2011 and 2012. Public of any post-soviet states, with GDP falling 45% from 1991 to mistrust of the president is relatively high following a rise in 1998. Since 2000, Ukraine has experienced a recovery, trust per the 2010 Life in Transition Survey (see next section) facilitated by policy reforms, increased trade, and capacity in as a result of austerity measures, corruption and growing 18 industry. authoritarianism. These factors have contributed to a perceived backsliding in democracy, which is a growing Russia remains an important trading partner, particularly in 22 concern of the EU. The 2012 election results showed that terms of energy. Ukraine depends on imports from Russia to the PoR remained the most represented party in Parliament; meet nearly 75% of its annual oil and natural gas however it does not have a constitutional majority. The 19 requirements. In 2008, Ukraine became a member of the election resulted in a more diverse parliament, with more WTO, which has offered better opportunities for export nationalist representation, and it remains to be seen how the diversification. PoR will interact with the opposition parties, and how it will 23 impact domestic politics. The public sector in Ukraine is quite large. In 2004, over half 20 of total employment was in the public sector. This has a Geo-Political Relations: EU Integration number of governance implications—while employment in In 1998, Ukraine entered into a partnership and cooperation the sector is high, institutional arrangements may introduce agreement with the European Union, laying the groundwork reverse incentives and reduce effectiveness of government. for deeper integration. In 2008, at the Paris Summit, an Ukraine has a large bureaucracy, and roles and agreement was made to open negotiations on an EU- responsibilities are at times unclear. Ukraine Association Agreement. The 2004 round of EU- enlargement resulted in a direct border between Ukraine and Political Developments and Democratization the EU, offering greater opportunity for economic and Since its transition to democracy, Ukraine has had an active 24 political associations. Although there is potential for EU and tumultuous political landscape. Politically, Ukraine has accession in the long-term, progress has been slow. experienced many shifts in power since 2003. The Orange Revolution of 2004 was associated with a significant increase The country has completed technical negotiations on a Deep in political freedom, reduced state control over media and and Comprehensive Free Trade Area (DCFTA) and an 21 emergence of a vigorous national political debate. Association Agreement with the European Union. However, high profile criminal cases brought against opposition leaders The Orange Revolution was the result of the dissatisfaction of have raised concerns in Europe and in the USA, and may stall Ukrainian citizens in response to alleged election fraud by the progress towards the Association Agreement. Ukraine has then Prime Minister Viktor Yanukovych. The opposition signed a new Free Trade Agreement with the members of the candidate, Viktor Yuschenko, was elected on December 26. Commonwealth of Independent States, but has declared that In the January 2010 elections, the incumbent earned less it does not envisage joining the Common Economic Space than 6% of the vote and in March of 2010, Viktor Yanukovych with Russia, Kazakhstan and Belarus. was elected President of Ukraine. FOR WORLD BANK INTERNAL USE ONLY. PAGE 5 The most recent progress report from November of 2010 on particularly those aimed at improving service delivery. The the EU-Ukraine Association Agreement shows that Ukraine reduction in government popularity, the slowing economic has made strides deepening relations with the EU. In 2010, growth, and democratic backsliding have resulted in a 28 Ukraine passed a new gas law that met with EU directive heightened risk for social unrest. standards qualifying Ukraine for membership in the European Energy Community (EEC). Ukraine became a member of the Institutional capacity is a challenge to Ukraine, despite EEC in December of 2010. This development along with Bank having one of the biggest public sectors in ECA. Institutional projects in the sector may ease the energy constraints and arrangements have at times confused roles and open up the Ukraine energy market. However, there remain responsibilities, and stronger leadership in ministries would issues for attention. The agenda priorities for 2011-2012 benefit governance and reform efforts. The 2010 Presidential include strengthening institutional effectiveness, Decree on the “Optimization of the system of State Bodies of independence and stability, including judicial reforms, Executive Power� has impacted institutional arrangements. strengthening administrative capacity as well as the The number of ministries decreased from 20 to 16. Follow-on 25 legislation (new bills and amendments) regarding central functioning of local and regional self-government. Other priorities include combating corruption, improving executive bodies, the Cabinet of Ministers, and the civil governance of public finances and audits, increasing voice service have since been adopted. Undertaking multiple and participation in decision-making through CSOs among reforms concurrently has slowed the overall pace of 26 29 others. implementation. Democracy and pluralism as discussed in the previous section provides both governance challenges and opportunities. The SECTION 3: KEY GOVERNANCE CHALLENGES Yanukovych administration has outlined a reform strategy including improvements in service delivery and efficiency of A few key governance challenges emerge when examining administrations (e.g. via reducing the size of government). the short term future of Ukraine. These include public trust, However, unless these projects succeed, the governance institutional capacity, democracy and pluralism, easing indicators may continue to decline and Ukraine may become business constraints, corruption, and human rights. The more authoritarian. following paragraphs explore these issues further. Election legislation passed in July of 2010, less than a year Public trust is a challenge and there is low demand for good before local elections were to take place, limited participation governance in Ukraine. On the Life in Transition Survey (LiTS), by any representatives of political parties not registered for trust in key public institutions including the president, more than one year. These restrictions were lifted in August parliament, government and courts is low, and falls below the 30, just ahead of the elections in October of 2010. Western European averages. See Chart 2. Nevertheless, the Party of the Regions won clear majorities in most regions. New election legislation was also passed in Chart 2: LITS Trust Indicators for Ukraine 2006-2010 November of 2011, ahead of the 2012 parliamentary (percentage of respondents who have trust in institutions by category) elections which marked a reintroduction of the mixed electoral system and raised the threshold for party representation from 3 to 5 percent of the vote, and barred 30 parties from running together in coalitions or blocs. Easing business constraints is also a challenge, despite Ukraine making progress on regulatory issues. Per the CPS, Ukraine has been stuck in a self-perpetuating low equilibrium of high entry barriers, low competition, limited incentives for technology adoption, low export diversification and sophistication, high vulnerability to commodity prices, and incumbent fears of reduced rents if entry barriers were 31 This lack of trust has undermined public support for reforms. reduced. The indicators in Section 2 show that despite Although improvements in service delivery and financial making reforms to ease business constraints, Ukraine remains reform are necessary, they are not priorities for the majority near the bottom of the region in terms of Doing Business. of the population. Public support for reforms has waned in Other countries may be making deeper reforms faster than the face of the failure of early reform efforts to deliver Ukraine. The regulatory barriers (such as entry/exit 27 tangible improvements and curb corruption. The low regulations, permits and inspections), appear to be hitting demand for good governance also limits the potential for SMEs harder than other firms, and the low number of new additional reforms and programs to be successful, as having firm entries considerably reduces the potential of stakeholder input and support is key for many programs, FOR WORLD BANK INTERNAL USE ONLY. PAGE 6 productivity gains, economic diversification, and job In July of 2010, a new public procurement law was passed 32 creation. and further efforts are expected to improve the situation, particularly in terms of costs. The previous procurement Corruption and state capture remain constraints as Ukraine system was effectively a privatized system, which may have has had persistently low rankings on corruption indicators. reduced transparency and fostered corruption in this area. Petty corruption is prevalent in the lives of Ukrainian citizens: The future round of BEEPS in 2012 may show bribery in per the 2010 Global Corruption Barometer, 34% of Ukrainians procurement levels returning to those of 2005. Other areas surveyed stated they paid a bribe to one of 9 service that are vulnerable to corrupt activities include tax 33 providers over the previous year. The results show that for administration, customs, and business inspections. day to day services, Ukrainians make unofficial payments most commonly for medical services (30%) and for policing The newly adopted anti-corruption law provides a framework 34 (29.4%). Other services also come with an unofficial costs, for fighting corruption and a Presidential decree “On including education (17.9% stated paying a bribe), and the Anticorruption Strategy in 2012-2015� sets out a roadmap for judiciary (16.9%), and land services (24.3%). Ukraine to implement many recommendations of the OECD and the Council of Europe’s GRECO. Key remaining legal Corruption is also an issue in the private sector. Per the WEF weaknesses include the lack of rules for compulsory financial Global Competitiveness Index, corruption was identified as disclosure by public officials and the absence of a competent the most problematic factor for doing business in 2011. anti-corruption body with enforcement powers. Moreover, Similar performance is seen in other indicators: the 2008 the DCFTA negotiations and associated regulatory reforms, results of BEEPS show corruption is the second top obstacle such as the adoption of a new public procurement to doing business behind tax rates. Ukraine only rated in the framework, and improvements in the licensing and th 17 percentile for control of corruption on the 2010 WGI and certification system, provide the opportunity to tackle fell on the Transparency International Corruption Perception corruption risks in these areas. Index. Human rights and reduction of freedoms is a growing While there are several identified areas to reduce corruption concern in Ukraine. After the consolidation of power, there and rent-seeking, one of the most prominent is public have been additional effects in the sphere of human rights procurement. Per the BEEPS, the increase in informal and civil liberties are also being seen after the consolidation payments for government procurement was more than two- of power, including increased concern for human rights and fold as measured by the percent of the contract value paid to receding press freedom and freedom of assembly. secure a government contract (see Chart 3). Human rights issues identified by Amnesty International and Chart 3: BEEPS Corruption Indicators for Ukraine 2005-2008 Human Rights Watch include reports of torture by law enforcement and mistreatment of migrants and asylum 35 seekers . Additional issues include the Law of Assembly Bribes are Frequently approved on June 3, 2010. This law failed to comply with 30 Needed to Get Things international human rights standards per Amnesty 27 36 Done (%) International. The law requires a 5-day notice of Unofficial Payments are demonstrations and allowed for the use of force by law 14 enforcement. Frequent in Dealing with: 16 Courts (%) Unofficial Payments are SECTION 4: WORLD BANK STRATEGY AND 15 Frequent in Dealing with: 13 ACTIVITIES Customs (%) Unofficial Payments are The engagement of the World Bank in Ukraine is driven by 18 Frequent in Dealing with: the 2012-2016 Country Partnership Strategy (CPS). The CPS 26 Taxes (%) aims to assist Ukraine to make progress in the declared Percent of Contract Value ambitious reform and EU integration agenda, supporting 2 efforts to improve relations with civil society and business; to Paid for Government 4.6 turn social distrust into support for reform and make Contract government both more accountable and more effective. 0 10 20 30 40 The CPS has two pillars: the first, �building relations with 2005 2008 citizens� supports deepened relations between government and citizens, and focuses on improving public services, sustainability and efficiency of public finances, and greater FOR WORLD BANK INTERNAL USE ONLY. PAGE 7 transparency and accountability regarding use of public reform implementation. The project aims to increase the resources. Under the first pillar the Bank finances capacity of the Government in managing capital budgeting investments in public sector infrastructure, work on setting reform as well as produce a monitoring and assessment tool up improved monitoring mechanisms and strengthening to track efficiency of capital budgeting practices in governance of public service providers, while supporting government agencies. The activities include a comprehensive intensified dialogue between the government and civil assessment of capital budgeting practices, development of an society in key policy areas such as pension reform, health assessment and monitoring tool that would be used to track care reform, district heating and public procurement. effectiveness of capital budgeting processes as well as related processes that affect public investment projects performance The second, �building relations with business� supports more countrywide as well as in specific agencies. The areas would productive cooperation between government and business include investment planning, project selection and by focusing on growth, competitiveness and job creation, evaluation, project implementation and ex-post evaluation. In improvements in the business climate, the promotion of addition, training will be provided on project management in domestic investment and foreign direct investments (FDI) to public investment projects for civil servants and other achieve productivity improvements, and channeling public knowledge dissemination activities are planned. investment into critical public infrastructure. The Bank's assistance in this pillar focuses on tackling first-order Strengthening institutional capacity in data collection, constraints in the business climate based on the dissemination and use is the objective of the Development of recommendations of analytical and diagnostic work the State Statistics System for Monitoring the Social and undertaken during the previous CPS. The expected outcomes Economic Transformation Project. The project focuses on are (1) friendliness, sustainability and predictability of the activities that strengthen institutional capacity for data business environment, for both domestic and foreign collection, processing, dissemination and use for policy investors, (2) improving infrastructure to reduce the cost of analysis. Other aims include: improving the match between doing business, and (3) comprehensive reform of the the needs of those who use the data and the work of those agricultural sector to allow Ukraine to benefit from high who provide it; and upgrading the quality and flow of official international demand for food and agricultural commodities. statistical and administrative data by introducing methodologies and definitions that can bring Ukraine’s The CPS also highlights key focal areas for analytical and performance in the field of statistics up to international advisory assistance (AAA) engagement. These include the (i) standards. investment climate including key sectors of agriculture, land, business regulations; (ii) fiscal, tax and PFM, (iii) energy Increasing institutional capacity in social assistance programs efficiency and governance (including gas sector is an aim of the Social Assistance System Modernization modernization), (iv) financial sector stability and Project. The project supports operational reforms to increase development, (v) municipal governance and service delivery, capacity of the Ministry of Labor and Social Policy (MOLSP) to (vi) social reforms (targeted social assistance and pension design social policy and implement programs, and that of reform) and (vii) health sector reforms. The following local and regional social welfare offices to outreach to the paragraphs summarize current engagement in Ukraine with a poorest parts of the population. The project has resulted in focus on projects and programs contributing to enhanced measurable progress and was extended for the second time governance. in 2010. Lending is also complemented by policy and advice and The Fiscal, Structural, and Governance TA aims to inform and technical assistance. For example, the changes in build consensus among the authorities, development procurement legislation referenced in Section 3 are part of a partners, local stakeholders, and civil society on the specific technical assistance project on capital budgeting designed to roadmap of needed actions on selected fiscal, structural, and improve project selection, evaluation and asset management governance reforms. Building on the findings of the among other activities. The Bank also works with a CSO programmatic Public Expenditure Review (2006-8) and the coalition recently formed to monitor the transparency and Country Economic Memorandum (2010), the TA will target efficiency of public procurement. The Bank has developed a reforms highlighted as essential for Ukraine’s growth and new procurement monitoring framework to assess modernization, while incorporating a stronger governance procurement costs efficiency and transparency, and provided dimension. The Ukraine Public Finance Modernization training to NGOs in use of this framework. Project also includes components to strengthen institutional capacity and operational effectiveness; and develop an In sectors, there are a number of projects with governance integrated public financial management system. aspects. The Ukraine Financial Sector TA supports the Ukrainian authorities to build a more sustainable, resilient, The objective of the Capital Budget Effectiveness fair and transparent financial sector. The TA has several aims: Assessment is to develop a framework for assessing capital first, to further promote the privatization of KyivBank and budgeting practice in Ukraine that would serve as a basis for FOR WORLD BANK INTERNAL USE ONLY. PAGE 8 Ukrgasbank and the resolution of NPLs through Rodovid Bank In land and agriculture, the Rural Land Titling and Cadastre and strengthen institutional capacity of the Deposit Development Project assists Ukraine with three primary Guarantee Fund to carry out effectively its new mandate as tasks: (i) privatization of the lands of state and communal bank resolution agency. Further, it assists in developing the farm enterprises, agencies and organizations; (ii) allocating institutional and legal framework for the Financial Consumer land parcels to owners of land parcels (shares) in kind (on Protection function. It also aims to improve financial sector site) and issuing state land deeds to them; and (iii) supervisory capacity and compliance with international establishing a land cadastre. The Ukraine Agriculture and standards of effective supervisory practice, and monitor and Land Monitoring TA also provides just in time advice to the respond quickly to challenges as they arise in the financial Government of Ukraine on agriculture and land policy issues. sector. Specifically, activities include (i) policy dialogue and technical advice to the government on agriculture and land-related The Ukraine Analytical Note on PSD aims to contribute to issues, particularly with respect to policy reforms and faster growth and release of the pent-up potential of investment priorities related to improving the productivity Ukraine's private sector, first and foremost the SMEs which and competitiveness of agriculture and land governance and; should, in the long-term, form the backbone of the country's (ii) preparation of just-in-time short briefing notes as required economy and value-added. The task aims to identify key by the government and country management unit on the constraints and growth challenges faced by the SMEs and above issues. suggest short and long term remedial measures, thus informing the PSD policies of the Ukrainian authorities. In Ukraine, infrastructure has been a high priority. Current active projects in the portfolio include the Urban The Ukraine Municipal Demand Side Governance study Infrastructure Project, the Power Transmission Project, the develops a framework for improved governance of the water Energy Efficiency Project, the Roads and Safety and sanitation sector in Ukraine through (i) assessing entry- Improvement Project, and the Hydropower Rehabilitation points and developing a comprehensive road map for Project. The Urban Infrastructure Project aims to improve demand-side governance measures; and (ii) contributing to the quality and reliability of infrastructure services and designing a sector information system based on performance utilities through institutional improvements and investments. indicators to introduce benchmarking. The study will The project combines instruments to develop institutional undertake a comprehensive review of potential measures to capacity to improve business practices; rehabilitation improve WSS sector accountability, and will include a sector- investments, and activities aimed at increasing energy level political economy analysis and stakeholder mapping to efficiency. Similarly, the Hydropower Rehabilitation Project help identify major obstacles to increasing transparency and also aims to improve operational stability and reliability of accountability. Further, it will develop a roadmap for power supply by increasing regulating capacity, efficiency and demand-side governance interventions and propose safety of hydroelectric plants. The Power Transmission actionable measures for local- and national-level parties to Project focuses on improvements in the security, reliability, undertake. The study will contribute to establishing a sector efficiency and quality of energy supply. The project will also information system based on performance indicators to aim to improve institutional capacity and technical facilitate benchmarking of utilities to track performance gaps capabilities of transmission system operator, UkrEnergo (UE). and increase efficiency and accountability. The study will recommend mechanisms for incorporating DFGG in future Transport has also been a priority for Ukraine, including the World Bank sector operations in Ukraine, including the next Roads and Safety Improvement Project. The aim of this municipal/water operation. project is to improve the condition and quality of primary roads (such as the M-03) and increase traffic safety. There are In health and education, there are several projects of note: three components to the project. The first focuses on road the Measuring Governance in Health and Education Sectors rehabilitation and safety measures, while the second in Ukraine project aims to develop indicators and methods of highlights road safety improvement. The third focuses on measurement for key areas of governance in the health and capacity building and enhancing road management according education sectors. The objective is to create a reliable to international standards and practices and introducing diagnostic tool to measure current status of the governance international 'best practice' contracting in the road sector. systems in Ukraine, which in the future could be applied also in other contexts and sectors. The study seeks to understand Other projects with governance and administrative (among other things) if and why service delivery at the local components are in the pipeline, for more information on new level differs within the existing fiduciary and norm-based projects and status of those presented here, visit the Ukraine setup. Further, the objective of the TA on Health Sector Projects page. Reform 2 is to continue to enhance the capacity to design and implement evidenced-based health sector reforms in the Ministry of Health, the Presidential Administration and sub- national government agencies. NOTES: FOR WORLD BANK INTERNAL USE ONLY. PAGE 9 1 16 The administrative divisions include 24 oblasts, 1 CIA World Factbook, Ukraine autonomous republic Crimea, and 2 municipalities with oblast https://www.cia.gov/library/publications/the-world- status: Kyiv and Sevastopol. The oblasts include: Cherkasy, factbook/geos/up.html 17 Chernihiv, Chernivtsi, Dnipropetrovs'k, Donets'k, Ivano- CIA World Factbook, Ukraine Frankivs'k, Kharkiv, Kherson, Khmel'nyts'kyy, Kirovohrad, Kyiv, https://www.cia.gov/library/publications/the-world- Luhans'k, L'viv, Mykolayiv, Odesa, Poltava, Rivne, , Sumy, factbook/geos/up.html 18 Ternopil', Vinnytsya, Volyn', Zakarpattya, Zaporizhzhya, and World Bank Country Partnership Strategy for Ukraine, Zhytomyr. Source: CIA World Factbook: Ukraine: 2008-2011, p.1 19 https://www.cia.gov/library/publications/the-world- CIA World Factbook Ukraine factbook/geos/up.html https://www.cia.gov/library/publications/the-world- 2 Freedom House Nations in Transit, Ukraine 2009 factbook/geos/up.html 20 World Bank Country Partnership Strategy for Ukraine, 3 Freedom House Nations in Transit, 2009, p.568 2008-2011, p.2 4 21 http://en.wikipedia.org/wiki/Constitution_of_Ukraine World Bank Country Partnership Strategy for Ukraine, 5 CIA The World Factbook: Ukraine: 2008-2011, p.7 22 https://www.cia.gov/library/publications/the-world- Economist Intelligence Unit, May 2012 Monthly Report factbook/geos/up.html Ukraine http://www.eiu.com.libproxy- 6 Other political parties include: European Party of Ukraine; wb.imf.org/report_dl.asp?issue_id=1359014320&mode=pdf 23 Front of Change; Our Ukraine; Party of Industrialists and Cheney, Catherine, World Politics Review. “Ukraine’s Entrepreneurs; Party of the Defenders of the Fatherland; Parliamentary Elections Bring Further Dysfunction�, October People’s Movement of Ukraine; People’s Party; People’s Self- 30, 2012. Available from: Defense Party; Progressive Socialist Party; Radical Party; http://www.worldpoliticsreview.com/trend- Reforms and Order Party; Republican Party Sobor; Social lines/12461/ukraines-parliamentary-elections-bring-further- Democratic Party; SDPU; Socialist Party of Ukraine; Ukrainian dysfunction 24 People’s Party; Union; United Center; and Viche. Source: CIA http://www.eeas.europa.eu/ukraine/docs/2010_eu_ukrain The World Factbook: Ukraine: e_association_agenda_en.pdf 25 https://www.cia.gov/library/publications/the-world- European Union External Action Service List of the EU- factbook/geos/up.html Ukraine Association Agenda priorities for 2011-12. Available 7 Wikipedia: Verkhona Rada. Available from: from: http://en.wikipedia.org/wiki/Verkhovna_Rada http://eeas.europa.eu/ukraine/docs/2011_12_eu_ukraine_pr 8 CIA World Factbook 2012: Ukraine Available from: iorities_en.pdf 26 https://www.cia.gov/library/publications/the-world- European Union External Action Service List of the EU- factbook/geos/up.html Ukraine Association Agenda priorities for 2011-12. Available 9 Economist Intelligence Unit, 2011. “The Economist from: Intelligence Unit’s Index of Democracy�. Available from: http://eeas.europa.eu/ukraine/docs/2011_12_eu_ukraine_pr http://www.sida.se/Global/About%20Sida/S%C3%A5%20arb iorities_en.pdf 27 etar%20vi/EIU_Democracy_Index_Dec2011.pdf World Bank Country Partnership Strategy for Ukraine, 10 Economist Intelligence Unit, 2011. “The Economist 2012-2016 p8 28 Intelligence Unit’s Index of Democracy�. Available from: Economist Intelligence Unit, May 2012 Monthly Report http://www.sida.se/Global/About%20Sida/S%C3%A5%20arb Ukraine http://www.eiu.com.libproxy- etar%20vi/EIU_Democracy_Index_Dec2011.pdf wb.imf.org/report_dl.asp?issue_id=1359014320&mode=pdf 11 29 Global Integrity Report Scorecard Ukraine 2011 Real Politics. “The Status of the Reform Program http://www.globalintegrity.org/report/Ukraine/2011/scoreca Implementation in Ukraine�. April 2011. Available from: real- rd politics.org/wp-content/.../04/reforms-report-ALL-13-04.doc 12 30 Doing Business 2012: Business Reforms in Ukraine Freedom House Nations in Transit 2012: Ukraine. Available http://www.doingbusiness.org/reforms/overview/economy/ from:http://www.freedomhouse.org/sites/default/files/Ukrai ukraine ne_final.pdf 13 31 Doing Business 2012: Doing Business in Ukraine World Bank Country Partnership Strategy for Ukraine, http://www.doingbusiness.org/data/exploreeconomies/ukrai 2012-2016 32 ne World Bank Country Partnership Strategy for Ukraine, 14 Freedom House. Freedom in the World 2012 2012-2016 33 http://www.freedomhouse.org/sites/default/files/inline_ima Transparency International Global Corruption Barometer. ges/FIW%202012%20Booklet--Final.pdf 2010/11. Available from 15 Heritage Foundation 2012 Index of Economic Freedom. http://gcb.transparency.org/gcb201011/in_detail/ http://www.heritage.org/index/country/ukraine FOR WORLD BANK INTERNAL USE ONLY. PAGE 10 34 Transparency International Global Corruption Barometer. 2010/11. Available from http://gcb.transparency.org/gcb201011/in_detail/ 35 Human Rights Watch, December 16, 2010 “Ukraine: Migrants and Asylum Seekers Tortured, Mistreated� Available from: http://www.hrw.org/en/news/2010/12/16/ukraine- migrants-and-asylum-seekers-tortured-mistreated 36 http://www.amnesty.org/en/region/ukraine/report-2010 FOR WORLD BANK INTERNAL USE ONLY. PAGE 11