Workshop with Government, NBU, market participants, IFIs and donors Developing the domestic sub-national debt market in Ukraine: Key challenges and proposed action plan Workshop with Government, NBU, market participants, IFIs and donors Kyiv, March 6, 2007 Introductory presentation

Welcome Acknowledgements Ministry of Finance National Bank of Ukraine USAID ATCI EU TACIS Municipal Development Institute Aval-Raiffeisen Bank Financy & Credit Bank Forum Bank ING Bank Kreshchatyk bank Pryvatbank Ukrsibbank ARTA Invest

Key impediments to development of domestic sub-national debt market No reliable government bond yield curve Limited SNG fiscal autonomy Deficiencies in legal and regulatory framework for SNG borrowing Distortions in structure of market incentives Absence of SNG bankruptcy framework Deficiencies in regulatory framework for CSEs

Develop domestic government bond yield curve Strengthen government debt management strategy (risk-based model) Extend maturities and support liquidity of benchmarks

Improve SNG fiscal autonomy Improve SNG budget predictability Develop own local taxes Adopt comprehensive approach to inter-governmental fiscal reforms

Improve legal and regulatory framework for SNG borrowing Improve definition of SNG debt Include payables in debt Include guarantess at issuance and value guarantees at risk (Public Debt Law) Progressively move from ex-ante controls to ex-post controls and market discipline Keep ex-ante registration Introduce automatic approval unless objection Move to ex-post control through budget process Relax debt limits for cities with credit rating Keep ex-ante control for FX debt

Improve structure of market incentives Phase out Treasury loans, rely on SNG current account with private banks Revise risk-weights used in calculation of banks capital adequacy ratios for SNG loans Tighten controls on connected party lending between banks and SNGs Do not impose credit ratings for SNG issuers or issues: let market decide

Introduce SNG bankruptcy framework SNG default Workout Recovery

Reform legal and regulatory framework for CSEs Apply full cost recovery tariffs (including cost of debt and equity) Improve targeting of social protection schemes Allow privatization of CSEs assets Regulate PPPs, including UK-PFI type structures

Contact point mnoel@worldbank.org Thank you Contact point mnoel@worldbank.org