The Ukrainian economy needs to grow. For far too long, Ukraine has fallen behind neighboring countries’ economic development, with the population paying a high price through low earnings, unemployment, low-quality public services and a deteriorating infrastructure.
The relevant question to ask is: What do prospering countries have that Ukraine does not? With the many advantages that Ukraine enjoys — a well-educated workforce, enviable endowment of natural resources, a vast area of uniquely fertile agricultural land, a good geographical location—Ukraine should share the economic successes of the countries on its western borders.
An important part of the explanation why Ukraine continues to lag behind in economic development is that it has not succeeded in reducing corruption.
Various measures of corruption, collected by different organizations and for different purposes, all show a strikingly similar result: corruption in Ukraine has been and continues to be widespread.
In Transparency International’s survey of the perceived level of corruption, Ukraine scores only 30 out of 100 (with 0 being completely corrupt and 100 being completely clean).
This stands in contrast to peer countries in the region, which score 50 and higher.
The Corruption Index in the International Country Risk Guide and the World Bank’s Control of Corruption Index arrive at the same result: corruption is a much bigger problem in Ukraine than in other European countries.
Self-serving public officials abusing their powers for personal benefit goes against the fundamental democratic principle of rule-of-law.
But corruption also harms economic development in various ways. Investors will only make long-term investments into the development of Ukrainian production once they are confident that their business will be treated fairly by government authorities, that competition is even, and that property rights are guaranteed.
If not, they will simply set up their business in Ukraine’s western neighbors. And this is what is happening. But it is not only that foreign investors stay away, domestic investment in physical capital in Ukraine is also low, much lower than in Romania, Hungary and Slovenia.
That it is corruption that holds back investment is confirmed by business surveys, which consistently rank the uncertainty of property rights, overreach by government agencies and shortcomings in the judicial system as the main concerns.
There is also a direct cost when public resources end up in the pockets of corrupt officials or their allies, rather than being used to provide high-quality public services.
Kickbacks in procurement, government contracts going to friends and family, private use of state property, and embezzlement of public funds increase costs and deprive the government of resources that could be used to provide education, health care, public infrastructure and defense.
As an illustration, the NGO Patients of Ukraine estimates that 1,600 Ukrainians die daily from the resulting lack of medicine, underlining the importance of safeguarding public resources and ensuring that they are used for their intended purpose.
Not surprisingly, countries with low levels of corruption tend to be richer.
This suggests that Ukraine could grow its economy by successfully reducing corruption.
A study by the IMF from 2017 shows that by bringing the level of corruption — which is now one of the highest in Europe — down to the average level of corruption in the European Union, Ukraine would increase annual GDP growth by about 2 percent.
This would make a substantial difference to employment and incomes over time, and would accelerate the convergence of incomes in Ukraine to the average income levels in Europe.
While much has been done since 2014 to create anti-corruption institutions, particularly the National Anti-Corruption Bureau of Ukraine, corruption remains a problem.
International experience highlights the importance of transparency to detect corruption.
ProZorro — the electronic procurement system — and the electronic asset declarations for public officials are significant developments.
The next step is now to ensure that these instruments lead to concrete results. High-level officials engaged in corruption should be held to account for their crimes. In this regard, strengthening the judicial system is key, including the swift establishment of an independent anti-corruption court of the highest standards.
Goesta Ljungman is the International Monetary Fund resident representative in Ukraine.
A man looks at exhibits at the Park of Corruption exhibition in Hryshko Botanical Garden in Kyiv on June 1. (Volodymyr Petrov)
