IMF: UKRAINIAN CORRUPTION
IMF wrote, an International Monetary Fund (IMF) mission, led by Ron van Rooden, visited Kyiv during November 3-17, to initiate discussions on the third review of the authorities' economic reform program supported under the Extended Fund Facility (EFF) arrangement. The mission also held discussions for the 2016 Article IV consultation with Ukraine. At the conclusion of the visit, Mr. van Rooden made the following statement:
"The mission held constructive discussions with the authorities on policies needed to complete the third review under the EFF arrangement. While good progress has been made, the authorities need some more time to implement policies to ensure medium-term fiscal sustainability—including adoption of the 2017 budget consistent with program targets—safeguard financial stability, and tackle corruption. Discussions on these policies will continue in the period ahead.
"At the same time, the mission discussed the outlook and challenges of the Ukrainian economy in the context of the 2016 Article IV consultation. After a difficult period, the Ukrainian economy is showing welcome signs of recovery. Decisive policy actions in the past two years have led to a dramatic reduction in external and internal imbalances. Inflation has been successfully brought down, the central bank's international reserves have increased substantially, and growth is expected to reach 1½ percent in 2016 and pick up to about 2½ percent in 2017. The strength and durability of the recovery, however, depend crucially on the implementation of ambitious reforms to support Ukraine's transition to a full-fledged market economy. Per capita GDP (in PPP terms) in Ukraine is still very low—just 20 percent of the EU average, the second lowest level of all Central and Eastern European countries. Faster sustainable and inclusive growth is needed to recover lost ground and improve living standards.
"The authorities' economic policies should continue to focus on: (i) accelerating reform of the large and inefficient state-owned enterprise sector, improving the business environment, and tackling corruption to attract investment and raise the economy's potential; (ii) ensuring that wage increases are consistent with improvements in labor productivity, to safeguard competitiveness; (iii) continuing fiscal consolidation to ensure debt sustainability, supported by pension reform and efforts to make the tax system more efficient and growth-friendly, while improving the quality of government spending; (iv) maintaining a cautious monetary policy targeted at further reducing inflation and rebuilding reserves within a flexible exchange rate regime; and (v) repairing the financial system and reviving bank lending.
"Turning the current stabilization into strong and sustainable growth—so that Ukraine can catch up with its regional peers—will not be an easy task. This has been a challenge in the past, when stop-and-go reforms resulted in the repeated buildup of large imbalances and economic crises. The authorities should remain united in their determination to continue to advance reforms, resisting populist pressures and overcoming opposition from vested interests. Decisive steps particularly need to be taken to fight corruption, which remains the most frequently mentioned obstacle to doing business in Ukraine. While there has been progress in setting up new institutions, including the National Anticorruption Bureau of Ukraine, and the publication of high-level officials' asset declarations was a major step, tangible results in prosecuting and convicting corrupt high-level officials and recovering proceeds from corruption have yet to be achieved."
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