Week’s balance: Easing from Cabinet, warnings from National Bank and new portion of promises from EU
The Ukrainian Government canceled 367 regulations, the National Bank has softened a number of foreign exchange restrictions, while the European Union put forward conditions for Ukraine to receive a EUR 600 million assistance package , at the same time failing to resolve the main political issue of the past years - the introduction of a visa-free regime. These are the main economic news of the outgoing week.
This has been a rather difficult week for Ukraine. The anniversary of the Revolution of Dignity, one of the major events in the country’s recent history, coincided with the Ukraine – EU summit, which in many ways was a landmark for Ukraine because a key issue on its agenda was visa liberalization.
Three years ago, millions of Ukrainians took to the streets of their cities because of their reluctance to tolerate lawlessness of authorities and because of the opportunistic reversal of Ukraine’s foreign policy toward Russia and the rejection of the country’s European future in favor of gas discounts or the purchase of government bonds by the government of the neighboring country. Since the time of the Maidan, Ukraine has experienced many dramatic events – the annexation of Crimea, the war in the east, Moscow-imposed trade restrictions, the loss of 20% of the production capacity, and the need for serious reforms under the circumstances when every “free” hryvnia is allocated for the army and defenses, rather than the economy.
For the past three years, Ukraine has consistently been trying to reform its lagging economy and modernize its political system. All of this has been happening with the participation of strategic partners and creditors. While the results of the reforms are not always obvious and immediate, but the work already done should have been enough for Ukraine to hear from European officials this Thursday about the prospects of the privilege of free movement across Europe without visa formalities.
All these issues were discussed November 24 in Brussels during the 18th Ukraine-EU summit. At the final press conference, President of the European Council Donald Tusk and European Commission President Jean-Claude Juncker talked about many things - military and political challenges, internal contradictions in the European Union, intricate bureaucratic procedures, change of the ruling elites, anti-corruption fight in Ukraine, and energy cooperation. On the most sensitive issue in our relations - the introduction in the near future of a visa-free regime – the EU leaders said the following: "visa lib" is possible but the decision will take time. In addition to the terms of granting the privilege, conditions of its suspension must also be worked out. A suspension mechanism is now being considered and it is not clear when it will be worked out. According to the most optimistic outlook, this will be done in summer 2017.
The economic outcome of the Ukraine-EU summit is a signing of a 10-year memorandum on energy cooperation and an agreement on the financial support of anti-corruption initiatives of the Ukrainian government. The Cabinet will be given EUR 16.4 million worth of grants to fight corruption in the public sector.
The fate of a EUR 600 million tranche of macrofinancial assistance, which Ukraine had also expected "to bring back" from Brussels, is still unclear. According to European Commission President Juncker, a key condition for the allocation of this tranche is the lifting of a 10-year moratorium on the export of round timber, introduced just over a year ago. If Kyiv retains the moratorium, it will never see this assistance package.
At the same time, the moratorium itself does not seem to prove effective as over the past year the felling of protected forests of the Carpathians has not ceased.
Meanwhile, the failure to receive the EU funds will lead to the need to adjust forecasts in terms of gold and foreign exchange reserves of the National Bank of Ukraine. In 2016 they should be at around $17.5 billion. However, in reality, this figure could be smaller.
National Bank warns of populism
Head of the NBU Valeria Gontareva, who has been under attack of populists lately, warned of the risks to the country's financial system. According to her, the EU money is not only "infusion" that can bypass Ukraine in 2016. As December gets closer with no budget and a number of economic laws not adopted, the prospects of getting another loan are getting more elusive, which has been partly confirmed by the IMF. The November schedule of the Board of Directors of the Fund does not include the Ukrainian issue on its agenda. Whether it appears in the schedule for December, will become clear next week. "Ukraine risks being left without the support of international financial institutions. Unfortunately, we have very high risks that we will not receive the tranche from the IMF this year," said the head of the NBU. "There is risk that the structural reforms needed to ensure the stability of our economy are being implemented slower and slower. Lawmakers hamper reforms that we have agreed with our international creditors and the IMF. This is pension reform and land market reform. But flirting with populism and political insinuations undermine macroeconomic stability of the state."
The National Bank emphasizes that it has been performing consistently its part of the program of reform and change in the banking sector. Thus, the NBU this week continued to ease the temporary restrictions on the foreign exchange market, introduced in 2014-2015 to stabilize the hryvnia.
Cabinet clears obstacles
The Cabinet also presented his package of reform solutions. At a Wednesday meeting, the government canceled as much as 367 obsolete, anachronistic regulatory acts related to different areas of business. Lifting a ban on mixing grains in the elevators alone will allow farmers to save up to UAH 10 billion on logistics by 2020. Deputy Head of the Strategic Group of Advisers in the Cabinet Pavlo Kukhta said that it's as much as 0.5% of GDP.
Also, the Cabinet has improved rules for calculating regulatory assessment of land and reduced the term of the statements of this evaluation to 1 day. Updates were also made in the rules of the development of oil and gas fields, as some of which have not been adjusted since 1984.
The next step of the government will be the analysis of regulatory acts of ministries and departments with their subsequent cancellation. Prime Minister Volodymyr Groysman instructed the Cabinet to pursue with deregulation at the ministerial level, stressing the government priority to improve business environment. Optimistic statistics
A key statistical indicator of the outgoing week was a report of the State Statistics Service on the growth of industrial production. From the beginning of the year, the industry has been showing positive dynamics – over the 10 months it grew by 1.9%, which corresponds to the estimates and forecasts of the government for this period.
It is significant that the most actively growing areas are machine building (over 12%) and energy (a little less than 4%) - in connection with the launch of the energy efficiency programs and a traditional start of the heating season.
The Finance Ministry noted some positive changes in business activity last week. According to the ministry, Ukraine has improved its ranking in the international Paying Taxes rating by 23 positions, making it to the 84th spot out of 190 participants. Commenting on the results, Minister of Finance Oleksandr Danyliuk said: "Do we want to be 84th out of 190 countries? Certainly, no. It is necessary to simplify tax administration, remove corruption-favorable conditions and reform the State Fiscal Service. These are the main issues that I hear at every meeting with businessmen. It is obvious that the adoption of anti-corruption tax changes is a key element for business development, but we need to move in all directions. The approach must be systemic."
The Ministry of Economic Development and Trade has also voiced its initiatives. This week First Deputy Minister Maksym Nefyodov presented to the public a comprehensive draft law on deregulation, providing for the abolition of the mandatory use of seals, simplification of the registration procedure for a newly established legal entity as a VAT payer, simplification of obtaining building permits, as well as improvement of the bankruptcy procedure, protection of the rights of minority shareholders and execution of contracts. The adoption of the document, as emphasized by Nefyodov, will allow Ukraine to improve the position in the World Bank's Doing Business ranking by 40 points immediately and to reach TOP-30 in terms of business freedoms in 2018. It is expected that the bill will pass peer review before the end of the year and, after discussion in the government, be sent to Parliament.
These were the key economic event of the week. The next seven days promise to be no less intense. Despite the fact that no plenary sessions of the Verkhovna Rada are scheduled, the deputies will continue to discuss the budget process and the key models for the IMF reform program.
Without exaggeration, Ukraine is waiting for a historic event. On November 29, a Safe Confinement arch will be slid over the "Shelter" at the fourth power unit of the Chernobyl nuclear power plant is going to be completed. The monument to the largest man-made disaster in the history of mankind will for at least 100 years be concealed under a layer of the Arch’s metal, built literally for the money and using the technology of the world community.
Olesia Safronova (UNIAN)