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Overview

  • Country Context

    Ukraine

    2020

    Population, million

    44.0

    GDP, current $ billion

    137.3

    GDP per capita, current $

    3,118.4

    School Enrollment, primary (% gross) (2015)99.0

    Life Expectancy at Birth, years (2018)

    71.6

    Ukraine has experienced acute political, security, and economic challenges during the past seven years. Since the “Maidan” uprising in February 2014, the country has witnessed several momentous events, including the outbreak of conflict in eastern Ukraine. From 2014 until 2019, the Government undertook key reforms, including: carrying out significant fiscal consolidation, moving to a flexible exchange rate, reforming energy tariffs and social assistance, enhancing the transparency of public procurement, simplifying business regulations, stabilizing and restructuring the banking sector, moving forward on health and pension reforms, and establishing anti-corruption agencies.  At the same time, Ukrainians continue to feel that more needs to be done to improve governance. Lack of trust in public institutions remains a fundamental concern for most people.

    President Volodymyr Zelenskyy was elected in April 2019 and in July, his Servant of the People Party won the parliamentary elections. The resulting government, as well as the one re-appointed in March 2020, have both committed to an ambitious and wide-ranging reform agenda.

    Although its economic impact has been less severe than expected, Ukraine remains among the countries in Europe most severely affected by the COVID-19 pandemic in health terms. By the end of 2020, Ukraine had adopted a National COVID-19 Vaccination Roadmap, and a vaccination campaign was begun in February 2021. 

  • Strategy

    World Bank Investment Portfolio

    No. of projects: 9 IBRD investment operations, plus one Program-for-Results (PforR)

    Total Lending: US$3.19 billion, including US$148 million from the Clean Technology Fund (CTF)

    The World Bank and Ukraine

    Ukraine joined the World Bank in 1992. Over the 28 years of cooperation, the Bank’s commitments to the country have totaled close to US$14 billion in over 70 projects and programs.

    The World Bank and the Ukrainian authorities are implementing a Country Partnership Framework (CPF) for Ukraine for FY2017–21 that supports the country’s efforts to achieve a lasting economic recovery benefiting the entire population. The ongoing CPF focuses on ensuring that markets work more effectively, establishing the necessary conditions for fiscal and financial stability, and improving service delivery for all Ukrainians.

    Key Engagement

    In the past seven years, the Bank has supported the people of Ukraine through a series of Development Policy Loans (DPLs), several new investment operations, a Program-for-Results operation to support the agriculture sector, and two guarantees amounting to approximately US$6 billion aimed at improving critical public services, supporting reforms, and bolstering the private sector.

    Reform measures aided by the Bank’s policy support operations have promoted good governance, transparency, and accountability in the public sector, as well as stability in the banking sector; a reduction in the cost of doing business; and the effective use of scarce public resources to provide quality public services at a crucial time. These operations also support the authorities in (i) continuing to reform an inefficient and inequitable housing subsidy system while protecting the poor from tariff increases by strengthening social assistance, (ii) reintegrating the conflict-affected regions, and (iii) responding to the  COVID-19 pandemic.

    World Bank investment projects focus on improving basic public services, such as district heating, water and sanitation, health, and social protection, as well as public infrastructure, such as the power transmission networks and national roads. The Bank is also supporting Ukraine through policy advice and technical assistance on formulating and implementing comprehensive structural reforms.

    In addition to financing several ongoing private sector projects, the International Finance Corporation (IFC) is implementing a large advisory program in the country, working to simplify regulations, improve the investment climate and energy efficiency, boost the completeness of local food producers, help open new markets, and increase access to finance.

  • Economy

    Recent Economic Developments

    Although the economic impact from the COVID-19 outbreak appears to be less severe than initially anticipated—GDP declined by an estimated 4.5 percent in 2020 compared to a  6.5 percent decline in the first half of the year—the pandemic has exacted a heavy toll in terms of health and mortality and has undermined the government’s commitment to undertake critical reforms. Recent anti-corruption reforms have also suffered setbacks due to adverse court rulings in late 2020.  

    Economic activity recovered in the first half of 2020, supported by a number of measures to mitigate the impact of COVID-19. The full-scale lockdown was replaced by an adaptive quarantine in June 2020 that enabled many services to return to normal functioning. Domestic demand was boosted by over 10 percent (year-on-year [y-o-y]) real wage growth due to an increase in the minimum wage and a gradual recovery in economic activity.  On the supply side, retail and wholesale trade grew 7.9 percent y-o-y in 2020 and made a significant positive contribution to GDP growth. The financial sector has weathered the downturn with its capital adequacy still strong. At the same time, agriculture output fell almost 12 percent due to drought and a poor harvest.

    On the external side, lower energy and higher iron and grain commodity prices resulted in the most favorable terms of trade for Ukraine in the past decade. Combined with import compression, this resulted in a current account surplus of 4.4 percent in 2020. Remittances were relatively resilient, down only 5.3 percent y-o-y in 2020, while private capital inflows also recovered in the second half of the year. International reserves reached US$29.1 billion at end-December, equal to 4.7 months of next year’s imports.

    Following the smaller-than-expected economic decline, fiscal revenue also performed better than anticipated. On the expenditure side, COVID-19-related outlays were less than budgeted, and a portion of the pandemic special fund was redirected to capital expenditures and to a public sector wage and pension increase. The fiscal deficit amounted to 6.2 percent of GDP compared to the initial plan of 7.6 percent.

    After two years of tight monetary policy, the National Bank of Ukraine (NBU) gradually cut its key policy rate to 6 percent in June 2020, a level it has since maintained However, a more accommodative fiscal policy stance resulted in an increase in inflation expectations from 6.7 percent in August to 8 percent at year-end. The inflation rate grew from 2.5 percent on average in the first three quarters of 2020 to 6.1 percent in January 2021, which is slightly above the NBU’s target of 5+/-1 percent. This triggered a key rate increase to 6.5 percent in March 2021.

    Although the COVID-19 relief measures were welcome, attention once again needs to turn to structural reforms that are required to raise medium-term growth prospects. Slower reform momentum has undermined investor confidence and delayed financing from international financial institutions; as a result, significant public financing needs in 2020 have been met mostly by domestic borrowing that amounted to 10.5 percent of GDP (gross). The composition of external financing has shifted toward more expensive commercial borrowings and Eurobonds comprising 4.3 percent of GDP in total.

    The poverty effects of COVID-19 are expected to be relatively muted, with the poverty rate, based on US$5.5 a day, projected to have increased by only 0.5 percentage points to 3 percent in 2020, as increases in pensions and wages helped to partially offset the decline in employment. 

    Economic Outlook

    Ukraine’s economic recovery in 2021 is expected to be mild, given the high uncertainty associated with the vaccine rollout and the direction of economic policies to address investment bottlenecks and to safeguard macroeconomic sustainability. The GDP growth projection of 3.8 percent is underpinned by positive base effects in agriculture and the processing industry and assumes that further temporary lockdowns are possible in the first half of 2021 due to delays in vaccinations.

    The 2021 budget targets a 5.4 percent deficit. Together with 10.5 percent of GDP debt amortization and 1.3 percent of GDP in arrears to the private sector, this will increase total fiscal financing needs to 17.2 percent of GDP (compared 15 percent of GDP in 2020). The increase in minimum wages will push the public wage bill to over 11 percent of GDP and create additional pressures on current account imbalances and inflation. Prudent fiscal policy is needed to address inflationary pressures in the medium term.

    The poverty rate, based on the US$5.5 a day threshold, is expected to decrease to 2.5 percent in 2021, similar to the level in 2019. Accelerating the reform momentum is key to achieving faster economic growth and poverty reduction in 2022 and 2023.

  • All projects in Ukraine

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    Project Spotlight

    Serving People, Improving Health Amid the COVID-19 Pandemic

    Ukraine’s Serving People, Improving Health Project is one of the World Bank’s largest health care projects in the Europe and Central Asia region, with a total investment of US$350 million. To scale up Ukraine’s health sector reforms and support the response to the COVID-19 pandemic, the Bank approved US$135 million in additional financing on April 27, 2020, to the initial investment of US$215 million.

    This additional financing will help Ukraine to upgrade up to 40 hospital emergency departments and stroke units, enabling hospitals to perform complicated medical procedures using high-tech equipment and appropriate treatment protocols. It will also help train thousands of Ukrainian doctors in the provision of modern medical services.

    The project provides US$35 million for COVID-19 emergency response activities. These funds will be used to buy essential materials and equipment for the country’s response to the crisis, provide much-needed training for medical personnel, and support the communication of critical public information. It will also cover the reimbursement of expenditures of providers of health care for patients with COVID-19.

    The Serving People, Improving Health Project supports important health reforms and assists in the renovation of hospitals and rural and urban health ambulatories, the purchase of modern equipment, and improvements in the efficiency and quality of health services. The expected improvements in service delivery focus on primary and secondary prevention, early detection, and the treatment of cardiovascular diseases, cancer, and COVID-19.

     


LENDING

Ukraine: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments



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Additional Resources

Country Office Contacts

Kyiv, (380 44) 490-6671
1, Dniprovskiy Uzviz, 2nd Floor, Kyiv 01010, Ukraine
ukraine@worldbank.org