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Ukraine Government Priority Action Plan to 2020

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Ukraine Government Priority Action Plan to 2020 APPROVED by the Ordinance of the Cabinet of Ministers of Ukraine of 2017 No. MEDIUM-TERM Government Priority Action Plan to 2020 Introduction Despite external and internal challenges, during the last three years Ukraine has kept moving towards deep structural reforms, and in 2016 this journey has produced some positive trends in the economy. The country’s economic indicators were at the lowest in 2015, but in 2016 the majority of them showed an upward trend. It means the country is overcoming its worst macroeconomic crisis caused by the imbalances of previous years. The huge state budget deficit, growing external debt, the banking crisis, the devaluation of the hryvnia, consumer inflation (as an annual average) at 48.7% and a 9.8% fall in GDP are only some of the difficulties Ukraine encountered in 2015. However, budget stabilization, tough monetary policy and international financial assistance have largely contributed to macroeconomic stabilization. Table: Core Indicators Indicator 2013 2014 2015 2016 Change in Gross Domestic 0 -6.6 -9.8 2.3 Product, % compared with previous year Gross Domestic Product per 8629.7 8683.6 7939.6 X Capita (at purchasing power parity), US $ Industrial Production Index, % 95.7 89.9 87.0 102.8 (compared with the 2 Indicator 2013 2014 2015 2016 corresponding period of the previous year) Agricultural Production Index, % 113.3 102.2 95.2 106.1 (compared with the corresponding period of the previous year) Average Weight of Gross Fixed 16.9 14.2 13.5 15.2 Capital Formation (GFCF) in the Total Gross Domestic Product, % NBU’s Official Discount Rate, % 7 14 30 22 (max and min) 6,5 9,5 19,5 14 International Reserves (as at end 20.4 7.5 13.3 15.5 of period, US $ bn) Level of unemployment among 7.3 9.3 9.1 9.3 15-70 year olds calculated in accordance with the International Labour Organisation method, % of economically active population in the corresponding age group. Average Monthly Gross Wage, 3265 3480 4195 5183 Hryvnia Average Pension Size, Hryvnia 1526 1582 1700 1828 Consumer Price Index, % 99.7 112.1 148.7 113.9 (average compared with previous year) Poverty Headcount Ratio (at 24.8 23.4 22.9 24.1 relative (national) poverty line), % (Jan-Jun) Income distribution (Gini 0.237 0.226 0.227 0.248 3 Indicator 2013 2014 2015 2016 coefficient) (Jan- Sep) Reconciled budget deficit, % of -4,2 -4.5 -1.6 -2.3 gross domestic product Naftogas deficit, % of gross -5.5 -0.9 0 domestic product Share of general government 43.3 40.3 41.9 38.4 revenues in gross domestic product, % Share of general government 48.1 44.8 43.0 40.6 expenditure in gross domestic product, % Sovereign debt and State 39.9 69.4 79.1 81.0 guaranteed debt, % of gross domestic product (as at period- end) Gross foreign debt, % of gross 74.6 93.9 131.3 121.8 domestic product Balance of current transactions, -10.0 -3.4 -0.2 -4.1 % of gross domestic product Net inflow of foreign direct 3909 299 3012 3268 investments, US $ mln Economic recovery in 2016 was due to growing investment activity and, to a lesser extent, to private consumption. Growth significantly accelerated in the 4th quarter, when the real gross domestic product grew by 1.9% from the previous quarter (adjusted for the seasonal factor) and by 4.8% compared with the 4th quarter of 2015. At 2016 year-end, the gross domestic product was growing at the rate of around 4 2.3%, which exceeded the expectations of various Ukrainian experts and forecasts by international organisations. However, economic growth in Ukraine is still unstable. The past 20 plus years of Ukraine’s independence were not properly used to build modern market economy institutions, which would ensure sustainable and inclusive economic growth for the Ukrainian people. Shortcomings in economic relations, such as weak property rights, market monopolization, an unequal playing field in the economy, its resource- based nature and a chronically low level of investment in new production capacity, all point to a systemic crisis in Ukraine’s current economic development model. Against this background, the Ukrainian government faces a huge challenge in attempting to live up to the Ukrainian people’s expectations regarding the creation of a free and democratic society and a viable market economy, as well as improving the quality of life in Ukraine. Within a short time after its appointment, the Ukrainian government quickly developed and approved the Priority Action Plan for 2016. Its adoption and implementation marked the initiation by the Government of a system-wide programme to introduce structural reforms in various areas of government policy. Notably, the Government implemented measures to ensure economic growth and, in particular, the development of a business and investment climate and infrastructure, the liberalisation of the Ukrainian gas market in line with European standards, and the reform of Ukraine’s electricity market. By introducing mandatory use of the ProZorro system for electronic procurement by all government agencies, local authorities and state-owned enterprises, the Government has opened up the huge public procurement market for businesses. 5 We have started to reform public finance management, which will help to prevent a fiscal crisis in future. The Government approved the strategy for public administration reform for 2016-2020. It is a key to successful implementation of structural reforms in all areas of public life. The improvement of people’s well-being has become a main objective of the Government’s efforts. In 2016, the living wage increased by 116.1%. Since 1 January 2017, the minimum wage has doubled to Hryvnia 3 200. Changes in tax and budget legislation introduced in connection with the decentralisation of power in Ukraine have laid a successful financial foundation for local self-government authorities. In 2016, local budgets’ own revenues increased by 41.7% from 2015, and their share in the general reconciled budget revenues increased from 18.5% to 21.8%. Ukraine managed to counteract the Russian aggression and restore the combat capabilities of its Armed Forces. It has started their transformation into a modern and effective army in line with NATO standards. Measures are being taken to ensure that the newly created anti- corruption bodies are able to operate with the fullest powers. The most important anti-corruption measure is the wide-spread use of e- declarations that were successfully introduced in September – October 2016. Increased public trust in the police proves the effectiveness of the law enforcement reform. The newly-created system of internal affairs agencies ensures a timely response to any violation of civil rights and freedoms and protects public order from unlawful infringements. The next step to support the Government's wide-ranging efforts is to implement the Government Priority Action Plan to 2020 (the 6 “Medium-Term Plan”), which has been developed in accordance with the Ukrainian Cabinet of Ministers’ Activities Programme. The key to ensuring sustainable economic growth and achieving European standards of living is the medium-term planning of consistent and comprehensive reforms and, in particular, those set out in the Ukrainian COM’s Activities Programme, the Sustainable Development Strategy “Ukraine - 2020”, the Strategy for Ukraine’s Public Administration Reform for 2016-2020, the Association Agreement between Ukraine of the one part and the European Union, the European Atomic Energy Community and their Member States of other part (the “Association Agreement”), the Memorandum of Economic and Financial Policies within the framework of the IMF-Ukraine joint programme under the Extended Fund Facility (the “Memorandum with the IMF”) and the Coalition Agreement. The Government remains committed to European values and will make every effort to ensure Ukraine’s integration into the European political, economic and legal space. The Medium-Term Plan defines the main objectives and areas of Government activity for 2017-2020 and will form the basis for medium- term budget planning, the Government’s annual operational planning, the strategic plans of ministries and other central executive bodies, the introduction of expert positions to deal with reforms, the legal framework for reforms and will serve as a tool for focusing donor assistance. The introduction of medium-term budget planning, which is integrated with the system of strategic state planning, will ensure effective financing of strategic activities and reforms and create a clear interconnection between financing of policies and their results. It will help to improve the system of strategic planning, monitoring and assessment, including the framework used to evaluate the 7 performance of ministries and other government departments in achieving the goals of their planned policies. In drafting the document, the following approaches were used: a systemic approach (priorities which will have the most impact and drivers of change in other areas were chosen) feasibility (only feasible objectives were included) achievability (clear implementation mechanisms and stages were defined) simplicity and transparency of the objectives achievement review (criteria, which are easy to understand and measure, were introduced) continuity of the development (interconnection with initiated reforms and strategic documents) The Government’s Goal and Objectives The goal of the Cabinet of Ministers of Ukraine is to increase people’s living standards and to improve their quality of life as a result of sustainable economic growth. The Medium-Term Plan
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