REFORMS IN UKRAINE AFTER REVOLUTION OF DIGNITY What was done, why not more and what to do next This publicaon was produced with financial Responsibility for the informaon and views set out assistance from the EBRD-Ukraine Stabilisaon and in this publicaon lies enrely with the authors. The Sustainable Growth Mul-Donor Account, the EBRD makes no representaon or warranty, express donors of which are Denmark, Finland, France, or implied, as to the accuracy or completeness of the Germany, Italy, Japan, the Netherlands, Norway, informaon set forth in the publicaon. The EBRD Poland, Sweden, Switzerland, the United Kingdom, has not independently verified any of the informaon the United States of America and the European contained in the publicaon and the EBRD accepts Union, the largest donor. 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REFORMS IN UKRAINE AFTER REVOLUTION OF DIGNITY What was done, why not more and what to do next Editors Ivan Miklos Pavlo Kukhta Contents Foreword 4 Introducon What was done, why not more and what to do next: Ukrainian reforms aer the Revoluon of Dignity 7 Chapter 1 Polical economy of reforms: polical system, governance and corrupon 10 Chapter 2 Macroeconomic policies 35 Chapter 3 Rule of law 48 Chapter 4 Energy policy 75 Chapter 5 Business environment 87 Chapter 6 Land reform 101 Chapter 7 Privasaon and SOE reform 112 Chapter 8 Healthcare reform 132 Chapter 9 Ukraine and the European Union 144 Annex 1 Report on reforms in 2016-17 162 Annex 2 The role of the government and MPs in reform implementaon in Ukraine 167 About SAGSUR (Strategic Advisory Group for Support of Ukrainian Reforms) 173 Glossary of terms 174 Foreword Foreword | 4 Foreword Maeo Patrone and Peter M. Wagner When in mid-2014 the revoluonary dust started to At the same me, the Reforms Delivery Office (RDO), sele, Ukraine's new leadership was confronted with the architecture's second component, was entrusted a host of unprecedented challenges. With the with coordinang, facilitang and monitoring the signature of the EU-Ukraine Associaon Agreement reform process across the administraon and and the Deep and Comprehensive Free Trade Area, ensuring that reform plans turn into outcomes felt by the government made every effort to channel the ordinary Ukrainians. post-Maidan enthusiasm into a wider societal and Complemenng the dynamism and local insight of polical consensus around the direcon of key the RSTs and RDO, as the URA's third component, reforms – to bring the country closer to Europe. the Strategic Advisory Group for Support of Since then, the European Union (EU) and the Ukrainian Reforms (SAGSUR) has been providing European Bank for Reconstrucon and Development high-level advice and guidance to the top polical (EBRD) have been leading supporters of reform in leadership of the country. Drawing on their vast Ukraine. This has included innovave approaches experience in leading successful reform processes in such as the EBRD-driven Naonal Reform Council as neighbouring countries (Poland and Slovakia) as well an early-day plaorm for reform champions from all as in Ukraine, SAGSUR experts have offered branches of government, parliament and society, as invaluable perspecve to Ukrainian decision-makers well as unprecedentedly large EU-supported on the challenges, risks and rewards that such programmes in crucial reform areas such as endeavours entail. SAGSUR's experience teaches us decentralisaon and public administraon reform. countless lessons, many of which are shared by the Recognising that significantly strengthened group's members themselves on the following pages. implementaon capacity was needed to translate the ambious reform agenda into tangible improvements Since 2014, the EU has mobilised around €14 billion, for Ukrainian cizens, the EU and the EBRD came including more than €1 billion in grants. Over the together in mid-2016 to design a mechanism to same period, the EBRD has invested in 147 projects boost Ukraine's reform implementaon capacity. The in Ukraine, totaling over €4 billion. Ukraine Reforms Architecture (URA) was tailored to the country's specific needs as well as its vast As a first insight, the EU-EBRD partnership potenal. This was the first comprehensive aempt demonstrates the power of joining forces in a of its kind in Ukraine to provide a coherent and common effort to support a country's progress on its aligned framework for reform implementaon – one reform path. Drawing on complementary areas of that would increase capacity within the public experse of the EBRD and the EU, we have been administraon to carry out reforms more efficiently, able to provide a beer-targeted and beer-med while engaging stakeholders across the board more support than we would have been had we acted in substanally in the reform process. isolaon. Stepping out of our usual siloes has brought At its core are the Reform Support Teams (RSTs), undeniable benefits to the way we use our limited currently acve in eight ministries and public resources and the progress that can be made when agencies. They have filled crical capacity gaps in we leverage on one another. Ukraine's public administraon and stand on the Our second insight relates to the recognion that any frontline of the reform implementaon drive. They reform support must be tailored to each country's have notably aracted young reform talent from the unique circumstances. Being cognisant of the context country's impressive pool of highly skilled “leaders in in which we operate is a necessary, but not a the making”, harnessing their enthusiasm and sufficient, precondion for the support offered to commitment to improving lives of their fellow bear the desired fruits. The help provided by cizens. Foreword | 5 internaonal reform supporters must not only be a good fit for the needs, constraints and potenal of a partner country, but also align with the wider goals to which its society aspires. In the case of Ukraine we have built on this societal momentum by empowering reformers with genuine commitment to moving the country closer towards its desired desnaon. Finally, reform delivery can seldom be executed by a single branch of the government system. Engagement of different branches in the reform process is vital for a legislave change or a policy to bring about the intended results. To effecvely provide support to reform efforts this means assisng the execuve, legislave and, as required, the judiciary in designing, enacng and enforcing the necessary changes. In the case of SAGSUR, involvement of its members in contribung to the Verkhovna Rada's legislave work has proven to be instrumental in building and maintaining the consensus needed for the adopon of several ground-breaking pieces of legislaon. Our innovave and unique experiment in Ukraine and its wide recognion has strengthened our belief that by partnering up to provide tailored and comprehensive assistance in support of reform- minded leaders, internaonal development stakeholders can make a tangible contribuon to boosng the chances of reform success. As Ukraine takes the next steps on its reform journey, we hope that the many lessons accumulated over the two and a half years of SAGSUR's engagement, and shared in this publicaon, will be a useful resource for all those striving to create a prosperous future for all Ukrainians. Maeo Patrone, Managing Director Eastern Europe and the Caucasus, European Bank for Reconstrucon and Development (EBRD) Peter M. Wagner, Head of the Support Group for Ukraine, European Commission May 2019 Introducon Introducon | 7 What was done, why not more and what to do next: Ukrainian reforms aer the Revoluon of Dignity Ivan Miklos Five years have passed since the Revoluon of ones. A very important contribung factor to this Dignity (also commonly referred to as Euromaidan), a negave narrave is the fact that Ukraine connues watershed moment in Ukraine's history that took to grapple with myriad problems. The transformaon place at the turn of 2013 and 2014. A hundred process of the country's system from oligarchic, ordinary Ukrainians died in the Maidan square, just corrupt and dysfunconal to one operang on the because they wanted to live in a normal society. They principles of a funconing market economy is ridden protested against the corrupt Yanukovych regime with obstacles and remains far from completed. that was robbing the country not only of its resources Ukraine does not currently occupy the top spot on but above all the hope for a beer future. the global media radar, but when the global news I first came to Ukraine just a few weeks aer the does zoom in on the country, it is mostly concerned Revoluon of Dignity, and in early 2015 I started to with the connuing bale in the Russian-occupied work as an adviser to the Minister of Finance Natalie territories in eastern Ukraine, conflict stand-offs like Jaresko and the Minister of Economy and Trade the most recent one in the Azov sea, or yet another Aivaras Abromavičius. In 2016, I became chief corrupon scandal. War, corrupon, oligarchs and economic adviser to the new Prime Minister scandals. For many media outlets only bad news is Volodymyr Groysman. Together with Leszek news. This is the reality, and Ukraine has not done Balcerowicz we were asked by President Petro enough to communicate the posive results of Poroshenko and Prime Minister Groysman to create reforms to audiences within and outside its borders. and lead a small group of foreign and Ukrainian This is feeding into the prevailing negave image of experts (the Strategic Advisory Group for Support of Ukraine in general and Ukrainian reforms in Ukrainian Reforms – SAGSUR).