Growing out of the Crisis, but Still below Potential

June 21, 2011

Kyiv, June 21, 2011 – The World Bank today summarized the results of its activities in Ukraine in fiscal year 2011 (July 2010-June 2011). In this final year of the current Country Partnership Strategy (2007-2011), the Bank continued its support to improved competitiveness and sustained economic growth, as well as more efficient and better quality public finance and services. But it noted that both the economy and the scope of the Bank’s assistance had remained below potential.

“Ukraine’s economy recovered in 2010 and looks likely to grow between 4-5 percent over the medium term. But delays in structural reforms leave the economy exposed to external shocks and citizens waiting for improvements in public services. In this context, our assistance has remained below levels reached during the crisis. With more consistent reform implementation, Ukraine’s economy could grow much faster and we could do more to help,” - said Martin Raiser, World Bank Country Director for Ukraine, Belarus and Moldova.

On May 17, 2011 the World Bank approved the US$200 million Energy Efficiency Project. The Project, which finances investments in more energy efficient power plants and equipment by both industrial and municipal clients through a credit line managed by Ukreximbank, reflects the recognition of the strategic importance of energy efficiency for Ukraine’s economy. If Ukraine were to reduce its energy intensity to the level of Poland, it could reduce its energy consumption by about one-third. This could translate into savings of around 15 billion cubic meters in the consumption of natural gas, making a significant contribution to improved energy security at low cost. At the same time, without reforms in energy pricing and regulation, Ukraine will struggle to reach European levels of energy efficiency and raise the necessary economy-wide investments to reach its own ambitious targets.

In 2010-2011, the World Bank also continued implementation of the Social Assistance System Modernization Project. Implementation of a “One-Stop-Shop” business model for social assistance benefits in almost all Local Welfare Offices has reduced the time it takes to process benefit applications from 4.5 to 1.4 hours. Such efficiency improvements have allowed more benefits to be processed per month (from 260 to 370), thus containing the growth of administrative unit costs of social assistance programs. Renovations of all 756 Local Welfare Offices, allow the delivery of services in better, more dignified conditions. The Project also supports the development of a new Management Information System for Social Safety Nets in Ukraine, which serves as the backbone of a shift towards better targeting of all social assistance benefits in Ukraine.

As revealed by several recent World Bank studies (Public Finance Review, Vol 1, 2007, Country Economic Memorandum, 2010), poor roads infrastructure is a key impediment to Ukraine’s competitiveness. An important aspect of the Bank’s involvement in the road sector is to help Ukraine improve its very poor road safety record. Under the Roads and Safety Improvement Project, the rehabilitation and upgrading of the road section between Boryspil and Lubny (120 kilometers) is well underway. This road section is part of Ukraine's international M-03 road linking Kyiv with Kharkiv and the border with Russia to the East. This project also provides technical assistance to the road agency Ukravtodor for better management and maintenance of the road network under its responsibility. Further road sector investments are in the pipeline, should this US$ 400 million Roads and Safety Improvement project be completed on time.

Together with the Cities Alliance, the World Bank assisted the Kyiv City Administration in developing a city vision and City Development Strategy for Kyiv until 2025. Public consultations on the City Development Strategy will continue until its adoption in the Fall of 2011. The engagement with the Kyiv City Administration is recognition of the importance of cities in driving the country’s competitiveness and growth and of the role of proper planning and open consultations in city development, and could serve as a model for other Ukrainian cities to follow.

As part of the World Bank’s engagement with municipalities across the country, the US$140 million Urban Infrastructure Project finances rehabilitation of water supply and sanitation infrastructure through energy efficiency investments in 15 cities in Ukraine.  The preparation of investment projects is at an advanced stage and the rehabilitation works are ongoing in Odessa, Ivano-Frankivsk and Chernihiv. The Bank also continued its support to building core public sector institutions by financing modern management information systems and providing assistance in developing modern methodologies in state statistics, public finance management and state tax administration. Moreover, Bank experts are helping to establish a modern land cadastre in Ukraine. These efforts have proceeded more slowly than originally planned and will require continued attention by the authorities in the year ahead. 

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, design pension and health sector reforms, and get the public procurement system back on track. With support from Bank experts and other partners 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.

In September 2010, Bank experts presented the Country Economic Memorandum (CEM) entitled “Strategic Choices to Accelerate and Sustain Growth in Ukraine”. The CEM provided a platform for shaping the government’s reform program for 2011-2014. But implementation still lies ahead. 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.

“The government realizes that the implementation of the reforms has been delayed. I think we can say the same about our existing portfolio of projects that have been implementing slower than we would like. In the World Bank we are ready to redouble our efforts so that 2011 is not lost for Ukraine to make more consistent progress in economic and social reform and  modernization,” - said Martin Raiser. “In doing so, we will want to make sure we hear from beneficiaries on the ground what impact our activities are having, as such feedback is an essential part of learning and improvement.”

Currently, the World Bank Ukraine Team is working on the preparation of the new Country Partnership Strategy for Ukraine for 2012-2015 that will serve as a roadmap for cooperation between the World Bank and Ukraine in the coming years.

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Victor Zablotskyi
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