Crisis Response and Beyond: The World Bank Summarizes Cooperation With Ukraine in Fiscal Year 2010

July 1, 2010

Kyiv, July 1, 2010 – Today the World Bank summarized the results of its activities in Ukraine in fiscal year 2010 (July 2009-June 2010). The support to Ukraine to deal with the impact of the global financial crisis was a focus of the World Bank’s work, but activities to assist the country’s long-term economic and social development and the transition process to a market economy also continued.

Responding to the financial crisis the World Bank provided the First Programmatic Financial Rehabilitation Development Policy Loan (PFRL1) to Ukraine in the amount of US$ 400 million. The loan was approved in September, 2009 and supported a program which helped Ukraine to stop the leakage of deposits and stabilize the banking system. With support from Bank experts and other partners, and within the framework for the PFRL1, the National Bank of Ukraine and the Ministry of Finance developed a legal and regulatory framework for the resolution of problem banks, including the recapitalization by the state of three systemic insolvent institutions, and strengthened the Deposit Guarantee Fund to shore up confidence in the banking system.

“I am satisfied that we were able to respond fast to the onset of the financial crisis”, said Martin Raiser, World Bank Country Director for Ukraine, Belarus and Moldova. “While the work is far from over, together with our colleagues from the IMF, EBRD, IFC and other partners we were able to help the authorities avoid a financial meltdown”.

As part of the response to the crisis, the World Bank also supported Ukraine in its efforts to reform and to restructure its energy sector through policy dialogue, technical assistance and financing. The World Bank was a key partner in the ongoing European Union led initiative to reform the gas sector and to lay the foundations for investments to modernize the gas transit system. Energy infrastructure investments under the Hydropower Rehabilitation Project helped increase the installed capacity of the Dnipro Hydropower Cascade by about 400 MW and its production by about 500 GWh which is equivalent to building a major new hydropower plant.  On November, 2009 US$ 60 million of additional financing for this project was approved. In early 2010, Ukraine’s national investment plan was approved by the Clean Technology Fund, providing up to US$350 million in concessional financing for innovative investments to reduce carbon emissions. The World Bank’s total portfolio of lending in the energy sector amounts to US$400 million, with more than US$ 500 million in additional lending now being prepared.

In 2009-2010 the World Bank also continued implementation of the Social Assistance System Modernization Project. A new One Stop Shop business model for client in-take and benefits administration has been developed and implemented in almost all of 757 local welfare offices all over the country.  This project, which started implementation in 2006, is strengthening the effectiveness of the social safety net to be able to protect the poor in times of crisis and beyond.

In supporting improved public services across the country, last year 100 new school buses were delivered to Ukrainian schools in rayons undergoing school optimization under the World Bank-funded Equal Access to Quality Education Project and 531 computer classes were furnished in 527 rural schools. While the project ends in December 2010, the challenge to improve the quality and efficiency of spending in education remains and will continue to require close attention.

The World Bank has also provided significant analytical support, drawing on its unique experience from working in countries across the globe. Currently World Bank experts are helping Ukraine find solutions to its acute fiscal challenges, reform its financial markets and get the public procurement system back on track. Recent World Bank publications include studies on health and demography, the labor market, targeted social assistance, and transport and trade facilitation.  The World Bank Office in Kyiv also regularly publishes the Ukraine Economic Update containing the Bank's medium-term economic forecasts for Ukraine, along with key information on current economic developments.

In March, 2010 the World Bank published its recommendations to the new Ukrainian government. The recommendations are geared to putting Ukraine back on a path to sustained economic recovery whilst ensuring the poor are properly protected during the inevitable adjustment. “The main message of our recommendations is that reforms in Ukraine are possible if they are properly explained. Citizens will accept change, including cuts in pension benefits and higher tariffs, if they see this as part of a package that also closes tax loopholes, reduces bureaucratic red tape, improves transparency and delivers more effective public services”, said  Martin Raiser. The World Bank continues to advise the authorities on the prioritization and sequencing of reform steps, including in the context of President Yanukovich’s new 2010-2014 reform program.

To facilitate access to the Bank’s knowledge products and generate a broader national debate on key development issues facing Ukraine, the World Bank continued to support its network of Centers of Innovative Knowledge partnering with universities in Kyiv, Kharkiv, Lviv and Odessa.

Looking ahead at the fiscal year 2011, the key priorities of the World Bank will be: (i) to continue to help the authorities lay the foundations for a sustained recovery from the crisis with a focus on fiscal policy, banking sector reform and the investment climate, (ii) to help finance critical infrastructure in the energy, municipal and transport sectors, (iii) to increase disbursements under existing Bank loans for greater development impact and results and (iv) assist the authorities in developing a medium-term reform agenda, including improving public services, strengthening governance and attracting greater strategic foreign investment. Also during the forthcoming year work on a new Country Partnership Strategy for Ukraine 2012-2015 will commence.