EBRD evaluated structural reform developments in Ukraine in Transition report 22-23

EBRD evaluated structural reform developments in Ukraine in Transition report 22-23.

The war has put Ukraine’s economy under enormous stress. Gross domestic product (GDP) declined by 15.1 per cent year on year in the first quarter of 2022, and by 37.2 per cent in the second quarter when the most severe and widespread fighting took place. Inflation rose to 23.8 per cent year on year in August 2022 because of production and logistical disruptions. Extraordinary financial support from official creditors/donors did not fully close the budget and external financing gaps. Foreign reserves fell by almost 20 per cent between January and August 2022 and the Ukrainian hryvnia (UAH) devalued by 20 per cent. The main creditors agreed that foreign debt repayments would be postponed for two years, but financing gaps remain substantial and further support from bilateral creditors is needed.

The European Council granted Ukraine the status of EU candidate country. Soon after the Russian invasion in February 2022 Ukraine officially applied for EU membership as a first step in a long and complex process. In June 2022 the European Council granted it candidate status for EU membership and made further steps conditional on reform progress in seven areas outlined in the European Commission’s opinion. By the end of the year, the Commission will assess Ukraine’s progress on implementing judicial and anti-corruption reforms, preparation of a plan to reform the entire law-enforcement sector, limiting the excessive influence of oligarchs in the economy and politics and tackling vested interests, as well as reform of the legal framework for national minorities.

Combating corruption. In December 2021 the authorities selected the final candidate for head of its Specialised Anti-Corruption Prosecutors Office (SAPO), which had been vacant since August 2020. After a long delay, the appointment of the SAPO chief in July 2022 gave fresh impetus to the investigation of several high-profile corruption cases. Reinvigorating the work of anti-corruption bodies is a key element of the EU approximation process, while the selection of a new director of the National Anti-Corruption Bureau of Ukraine remains a key test outlined as priorities by the European Commission. Nonetheless, the country’s EU candidate status and international support prompted parliament to adopt a new anti-corruption strategy to 2025, developed by the National Agency on Corruption Prevention (NACP). The new strategy pursues the EU criterion of accountable government and outlines the implementation of programmes to curtail corruption across the courts and law-enforcement agencies, taxation, construction and the defence sector, among others.

Judicial reform. In November 2021 the authorities formed the Ethics Council as a key body for implementing judicial reform. Its main function is to review the integrity of the High Council of Justice, the highest judicial governance body in Ukraine. After a convoluted process, the Ethics Council selected and parliament appointed two reputable members to the High Council of Justice, a decision praised by international supporters of judicial reform. This sets high standards for the additional 15 appointments to follow. Civil society organisations noted that better communication between the Ethics Council and the public would increase the credibility of ongoing judicial reform.

Digitalisation. In August 2022 NABU and SAPO resumed their service through the eCase Management System, which automates pre-trial investigation among detectives, prosecutors and judges. Since the war on Ukraine began, law enforcement agencies have faced difficulties preserving materials of criminal proceedings and investigative cases. The eCase Management System can store these materials electronically using online back-up, enabling critical legal materials to be preserved and transferred safely. Russia’s full-scale invasion actually contributed to the expansion of the Diia platform as a one-stop shop for public services. Frequently used as a digital wallet to carry government-issued e-documents, the Diia platform has also been used by the authorities in recent months to detect military engagement, online fundraising and online registration of internally displaced persons.

Energy reforms. The war has destroyed many energy plants and led to a loss of energy production capacity. However, the authorities increased energy efficiency by integrating into the EU’s single electricity network, the European Network of Transmission System Operators for Electricity (ENTSO-E). Accelerated integration into the EU electricity grid has enhanced energy security, providing Ukraine with greater energy independence from Russia and Belarus. It also has a positive impact on the Ukrainian electricity suppliers who can profit from the direct export of electricity to the European market.

The deposit guarantee system has been strengthened. In April 2022 the Parliament adopted the Law of Ukraine as of 01 April 2022 No. 180-IX to guarantee 100 per cent compensation for losses of bank deposits for the period of martial law and three months after it ends. Afterwards, the maximum compensation of deposits increases to UAH 600,000 (US$ 16,500) from the current UAH 200,000 (US$ 5,500). In addition, the state-owned Oschadbank, which was the only bank with a 100 per cent state deposit guarantee scheme before the war, eventually became a member of the Deposit Guarantee Fund, with the same deposit protection level as other banks in the system.