Ukraine is going to have to make better progress in economic reforms and tackling corruption if it is to continue to receive the support of the International Monetary Fund, officials and experts have warned.
In a statement released on Nov. 18, the IMF mission to Ukraine, led by Ron van Rooden, concluded that despite some progress, the Ukrainian authorities need more time to advance economic reforms supported under the Extended Fund Facilit arrangement.
Experts say that because of the slow progress, the IMF is unlikely to transfer a third $1.3 billion loan to Ukraine this year. The fund wants to see more decisive actions from the Ukrainian authorities in tackling corruption at a high-level, they say.
Besides efforts to achieve fiscal sustainability and adopt a 2017 state budget consistent with its program’s targets, the IMF highlighted the importance of decisive steps to be taken to show “tangible results in prosecuting and convicting corrupt high-level officials and recovering proceeds from corruption.”
Recognized as one of the most corrupt nations in the world, in two years Ukraine has managed to make some progress in this area, although not without pressure from the outside. Since 2014 it has adopted anti-corruption laws and strategies and established the National Anti-Corruption Bureau. It overcame attempts by high-level officials to sabotage legislation introducing electronic asset declarations, and launched the ProZorro e-procurement system to weed out corrupt state procurement schemes.
But law enforcement and courts, being a corrupt system themselves, are still reluctant to bring the powerful to justice. As per Transparency International Ukraine, only one out of five officials convicted of bribery have been imprisoned, and there are no high-ranking officials among them.
In addition, the lustration department at the Ministry of Justice is now led by a 23-year-old law graduate Anna Kalynchuk, appointed on Nov. 22. It’s not clear yet if she will be able to drive the purge of corrupt officials in the light of the ongoing exodus of reformers from the government.
Government reaction
In response to the IMF statement, Minister of Finance Oleksandr Danyliuk announced that Ukraine at the moment doesn’t need more money from the IMF.
“Tranches from the IMF go to the reserves of the National Bank of Ukraine, not to the state budget. Even if we don’t receive one this year, we won’t need to seek money to substitute it,” Danyliuk told mass media.
He added that Ukraine’s latest upgrade by Fitch Ratings to B- from CCC would allow the government and state companies seek loans on external markets at lower interest rates.
The upgrading of the debt rating became possible thanks to Ukraine obtaining IMF loans – an indicator of the country’s improving microeconomic stability and gradual recovery from a deep recession.
Expert opinions
Still, some economists express concern over the stumbling cooperation between the IMF and Ukraine. They believe cooperation may grind to a halt in 2017, and that the country might not receive any more aid tranches.
Oleg Ustenko, the executive director at the Kyiv-based Bleyzer Foundation, thinks that the Ukrainian bureaucratic machine’s tremendous resistance to structural reforms, and the lack of political will to push them through, will doom the Ukrainian economy to sluggish growth and dependence on exports with low added value.
“The IMF is about reforms first of all, and the money is only an incentive from them. If Ukraine fails to receive it from IMF, there won’t be financial support from other creditors either, and in 2017 external borrowings may be unavailable,” said Ustenko.
According to the IMF, the growth of Ukrainian economy in 2016 is expected to reach 1.5%, increasing to about 2.5% next year. Per capita GDP in the country is just 20 percent of the EU average – the second lowest in Central and Eastern Europe.
The only means to stimulate the advancement of reforms, Ustenko says, is a full-on assault with corruption.
For inspiration, Ukraine could look to success story of Romania’s National Anticorruption Directorate (DNA) crackdown, which resulted in the indictments of 1,250 public officials including a former prime minister, five other ministers, 21 members of parliaments, and a city mayor.
However, as Ustenko puts it, the measures should not come only in a form of penalties, but in eliminating the holes in the system that create room for corruption.
Erik Nayman, managing partner at Capital Times, a financial advisory and wealth management company in Kyiv, is even more pessimistic about Ukraine’s future cooperation with the West.
He said the West is so disappointed with Ukraine’s inability to reform that serious intervention may be necessary.
“The level of corruption is similar to Yanukovych’s times, but Ukraine as a state has become poorer,” said Nayman.
“Ukraine’s monetary reserves mainly consist of loans from the IMF, the EU, the United States, the World Bank, and Russia. It has managed to borrow so much that amid its inability to reform itself the economy may be heading to sovereign default.”
He also said that Ukraine shouldn’t count on the support from the U.S. government, since the future administration of President-Elect Donald Trump will be more rigorous in its requirements.
Economist Andrey Blinov also believes Ukraine may face default if the economy continues to grow at its current sluggish pace. He noted that the peak payback period on Ukraine’s foreign borrowings is 2018-2021.
Ukraine’s efforts in tackling corruption will also be under scrutiny at a meeting of EU leaders on Nov. 24 in Brussels.
