Ukraine’s reform priorities: 2019-2020 Presentation at the Bruegel seminar on “The Ukrainian economy: the way forward after a year of political turbulence”, Brussels, May 28, 2019 Marek Dabrowski

Macroeconomic challenges (1) Fragile macroeconomic and financial stability and weak recovery Continuing fiscal deficit and public debt on unsustainable level; limited access to private debt market (conditional on continuing IMF support) Social and pension spending – major expenditure item No sustainable source of financing current-account deficit, continuous current account controls Modest gross international reserves (4M import) Inflation only marginally below 10% and dependent on exchange rate stability NPLs over 50% of total loan portfolio and growing High degree of dollarization Potential challenges to NBU independence

Macroeconomic challenges (2)

Macroeconomic challenges (3) Source: IMF Country Report No. 19/3

Macroeconomic challenges (4) Source: IMF Country Report No. 19/3

Energy sector reform Keeping natural gas and district heating tariffs on cost-recovery plus level, avoid return to gas subsidies or cross-subsidies, ultimately – market determination of gas prices Naftogaz restructuring (unbundling) Elimination barriers for domestic gas production Energy-market regulation, especially electricity (source of rents and corruption)

Other structural reforms Privatization (improving business climate and efficiency, eliminating sources of corruption, reducing public debt, Abandoning land moratorium Abandoning monopoly of Ukrainian Railways in cargo transportation Easing business climate

Political system Dysfunctional Constitution of 1996/2004 Two-head executive (potential for conflict) Difficulties with forming parliamentary majority and government Contradictory rules with potential for various interpretations Mixed electoral system Financing political parties and election campaigns Majority rules (27 vacancies in Rada)  53.2% for legislation, 70.9% for constitution changes

Decentralization Constitutional changes blocked (because of the special status of Donbass) Some progress in voluntary consolidation of smallest territorial units (formation of hromadas) Fiscal decentralization (education and healthcare) The most serious agenda still ahead and sustainability question

Other institutional reforms Continuation of judiciary reform (including constitutional changes) – long road ahead Reform of police (unfinished) No much progress on other fronts: prosecutor office, security agencies, public administration, etc.