AnalyticsYear 2016: Time of great expectations
The ministers and the experts shared with UNIAN their opinions on the measures to be taken to restore the economy of Ukraine in 2016.
Ukrainian authorities expect that the coming year will be a breaking point for the economy and pledge to do all they can to revive it. However, the experts have doubts, because they see no clear action plan to overcome the negative processes of the past years. The issues of the fight against corruption, the development of the banking system and lending to the economy, attracting investment, increasing production capacity have been and remain relevant, but there are too few specific answers and solid solutions offered. There are still too many slogans, benchmarks and targets, but there is no systematic and consistent work on achieving them. The government mostly puts down fires and solves urgent problems. Meanwhile, it is rather difficult to rebuild the house named "Ukraine" with the given set of performers and tools.
What can really happen in the economy in 2016? The government promises a slight 2% rise of GDP following two years of its catastrophic fall, annual inflation slowdown to 12% and the stabilization of the exchange rate at UAH 24 to the dollar. The Ministry of Finance also forecasts growth of social standards by 12.5%.
Prime Minister Arseniy Yatsenyuk called the main economic purpose of the government the restoration of well-being of citizens in 2016 and the creation of new jobs. "The national priority is membership in the EU and NATO. In the economy, it is the improved well-being, education and healt reform, the fight against corruption, including at the customs, the introduction of new regulations of the Tax Code. And, of course, it’s privatization," said Yatsenyuk.
But the experts perceive such statements with caution. Their skepticism is based not on nonconfidence in the government, but rather on a vague understanding of the real ultimate goals of the chosen path.
We need an action plan
Economists interviewed by UNIAN share the same thought: Ukraine needs a clear program of the government’s work for 2016, which would represent not just a set of images, but a set of goals and mechanisms to achieve them. And it is not necessary to collect those "bit by bit" from all the ministries. It would be enough to have two dozen targets with clear deadlines and resource provision. In this case, everyone would see at the year start, what is happening and what to expect in December.
Director of economic programs at Razumkov Center, Vasyl Yurchyshyn, said:
"We can’t say that whenever we adopt the budget everything will be great, or whenever we start privatization, things will get even better. The authorities should first present a clear picture of their vision of what things should be like. Not just a PDF presentation, but the goals, objectives, instruments, tools and resources. Why do we need this program? Because we do not know our goals for 2016: is it implementation of the budget, or improving well-being, or attracting investors? We would like to understand."
At this, Yurchyshyn noted that among these objectives, first of all, there should be ensuring property rights and the rights of creditors. "It would be better if we finally show that creditors' rights are respected not for political reasons, but on the basis of legal requirements."
The second most important task of the government, according to Yurchyshyn, is stimulating economic activity. "It's not about the financing of individual branches or granting preferences, but about leaving the administrative and tax field unchanged, instead of adopting amendments every month," said the expert.
The third point is the transparent implementation of the budget, stimulation of the growth of incomes of the citizens, and holding an open and active privatization, without false rumors and accusations of bias.
Doctor of Economic Sciences, financial expert Anatoly Guley, agrees with the expert.
According to him, it’s time that the Ukrainian authorities should decide whether they are engaged in political economy or economic policy. "Show us the program of reform - we need to understand, what the reasons are we have been so patient for, and how much we need to wait. Why don’t we implement health reform, the reform of the Pension fund, public utilities sector? Why do these areas remain "Soviet" while we constantly mess with the taxation of small and medium businesses?" said Guley.
At the same time, speaking of applied problems, he stressed that the key task should be "purging" the banking system. "It is desirable to complete this process in the first half of the year, so that it’s possible in the second half to build a model of lending to the economy and start raising the GDP by lending to various industries. That is the number one task," said the expert.
He also drew attention to the need to restore confidence in the banking system - both at the corporate and the popular level. "We still have the administrative limits of the National Bank for foreign exchange transactions. They need to be canceled as soon as possible, to give the people back the opportunity to work with currency. The citizens have accumulated $92 billion, but this money does not go into the banking system. It does not allow the banking system to earn, recover and lend to businesses. This is a vicious circle of distrust," said the finance expert.
Andriy Kolpakov, the managing partner of Analytic Group Da Vinci AG, also spoke with UNIAN about confidence.
According to him, now the most important thing is practical implementation of fiscal innovations. In case of a failure or mistakes, the failure in the fight with shadow economy will also be inevitable. "The authorities need to balance between the desire to put pressure on business to bring it out of the shadows and the risk of social unrest," said the expert.
Greater competition in the domestic market with the continuing fall of the purchasing power of the population is just as important. The losses will have to be offset by increased exports, but this outcome is not easy to achieve, given that 2015 was unsuccessful in terms of foreign trade. "We need to continue to work on the creation of several new economic and trade alliances; to get away once and for all from a model of development based on the heavy industry eastern Ukraine,” said Kolpakov. “It is necessary to try to stimulate processing industry in agriculture. In this context, the work needs to be done to establish a legal framework for the free market of famrlands. But it will be very difficult to reach compromise on this issue."
Chief economist at Dragon Capital Olena Belan believes that the most important task in 2016 will be attracting investments, as there can be no stable long-term growth without them.
"In 2015, the macroeconomic situation was finally stabilized, and now the authorities need to make every effort to improve the investment climate and create conditions to safeguard foreign and domestic investors from raids, unfair court decisions, corruption, extortion and adversity alike. It is necessary to carry out large-scale privatization through an open competition involving the maximum number of participants to show the international community that the state is serious about changing," said Belan. She also believes that a total mistrust prevents the country from moving forward. "Ordinary citizens do not trust the authorities, while the different branches of power do not trust each other. Making a step forward and, if not winning, then at least reducing the level of distrust is an important task for all of us in a short term," said Belan.
Future is near
The Prime Minister, the ministers of the economic block of the Cabinet and the National Bank Governor are not so categorical in their assessments. We asked for their views on the key objectives for 2016. That's how they see their work over the next 12 months.
Arseniy Yatsenyuk, Prime Minister of Ukraine:
I will go first with Ukraine’s geopolitical strategic goal, which, of course, is membership in the European Union. And that is the objective of all our reform program and our whole program of change in Ukraine. From a security perspective there is no doubt that Ukraine should become a member of NATO. And this is the main objective of the reform of the defense and security sectors of the country. Hundreds of billions of resources are allocated from the state budget for this purpose.
The third is the national goal - the restoration of the territorial integrity and sovereignty of the Ukrainian state. This means the return of Donetsk, Lugansk regions and the Autonomous Republic of Crimea under the full control of the Ukrainian authorities.
The fourth is, of course, the economic objective. And the economic objective is to increase the cash income of citizens and create jobs, improving the well-being of the Ukrainian citizens.
A separate set is the reform of the State Fiscal Service and the reform at the customs. We have reduced a significant number of regional units of the SFS, but it is a process that requires further reforms.
The task of the government in the fight against corruption is to provide funding for anti-corruption agencies. Another key priority in 2016 is healthcare reform, privatization and public procurement. On the “budget night” we managed to adopt a new bill on public procurement. So, the year of 2016 is the year of the enforcement of transparent procurement, the fight against corruption and the reduction of the cost of public procurement in electronic tenders and e-auctions.
Natalie Jaresko, Finance Minister:
We have plenty of plans. There is an ongoing reform of the State Fiscal Service - both in terms of customs, and financial investigation services. On the agenda there is also a presentation of a development strategy of the banking system and a new strategy of the state banks’ development and improving their corporate governance. Besides, we have an idea to expand access to new investment loans, including those of the banks from Arab and Asian countries.
We are also expanding “e-data” [disclosure of data on budget implementation] to “e-budget,” that is, starting a new budgeting system "from scratch", not on the basis of previous budgets. In addition, we are beginning – and I’ve signed the instruction – a three-year budgeting process, in order to have predictability in more than a year.
Finally, we are creating the fiscal risks department, which will monitor all state-owned enterprises and their risks to the budget.
Valeriya Gontareva, Governor of the National Bank of Ukraine:
Our mission is to ensure price and financial stability of the economy. We hope to move in 2016 to the inflation targeting regime that will help the businesses and the public to not consider inflation as a reason for concern, and will return confidence in the local currency. Inflation risks will weaken, and the stability of the currency market will intensify. We also plan to continue the gradual easing of monetary policy to support economic activity.
In 2016, we will complete a thorough purging of the banking sector. Moreover, the lion's share of the work has already been done. We will achieve the desired level of capitalization of the banking sector. We have rather ambitious plans for 2016 in the "payment transactions" sector.
The recipe for our success is the team of people sharing the same views. I am sincerely grateful to my team - true patriots and professionals. We are confident that the worst is behind us, and we are full of cautious optimism for the future. We expect that in 2016, Ukraine will see growth not only of bank lending, but also of the assets of the entire financial sector; and will see gradual development of capital markets and increased foreign investments.
Volodymyr Demchyshyn, Minister of Energy and Coal Industry of Ukraine:
Next year we will continue to reform our sector according to the European regulations: introducing a competitive gas market, creating a competitive and transparent electricity market. We will continue to destroy pockets of corruption and continue the policy of energy independence and diversification of supplies. We will be doing this calmly and methodically, without being distracted by the resistance of those, whose status quo worth billions we have broken.
Oleksiy Pavlenko, Minister of Agrarian Policy and Food of Ukraine:
The agrarian sector is not just one of Ukraine’s most powerful industries, but also one of the largest among the promising ones. We see the direction in which we have to develop and we see what have to strive for. The year of 2016 should be the first year of realization of the potential of our agriculture. Among the key objectives for the next year is the expansion of international cooperation and investment in the agricultural sector. We plan to conclude a number of agreements on free trade zones with Ukraine's partner states - Israel, Turkey and Vietnam. We also plan to sign a number of memorandums and agreements in the field of agriculture with Indonesia, India, China and Spain. We will hold negotiations with international financial institutions to attract the resources needed for the modernization of production facilities. Among prospective investors are the International Finance Corporation, the World Bank, the EBRD, the EIB. The next stop should be the attraction of investments for the restoration of irrigation systems in southern Ukraine, which will boost the harvests and increase production in the field of agriculture.
Aivaras Abromavicius, Minister of Economic Development and Trade of Ukraine:
In the past year, we have laid the foundation for economic growth in the 2016. The Ukraine-EU DCFTA took full effect several days ago, and this is not only an opportunity for Ukrainian goods to get on the shelves of the stores across Europe, but also the investment in export-oriented businesses. In 2016, we expect to attract up to $5 billion in foreign investments.
The Office of effective regulation has started its work. In the first place, it will review up to 10,000 regulations in four areas: agri-business, connection to powerlines, construction, and the sphere of regulatory authorities.
Due to the successful adoption of the bill on public procurement, we will be able until the end of the year to transfer all public procurement in Ukraine the country into an electronic format.
This year, we will start a large-scale privatization. It’s not only the next step in the reform of state-owned enterprizes, but also the main thing is the fight against corruption schemes and losses for the budget.
Our goal for this year is to get into the top 50 of the Doing Business rating. This is an important indicator for foreign businessmen who choose destinations for investment. There’s a lot of work to do, with no time for further prepararitions.
As you see, we have a lot of plans, again. To be among the best in Doing Business; privatize the state assets, including the sale of Odesa Portside Chemical Plant, several energy companies and chemical giant Sumykhimprom; adopt a new Tax Code, and create incentives for the development of small and medium-sized businesses.
We can’t say that these goals are unachievable – it’s all in the hands of the government and parliament. But in addition to domestic problems, there's still the world economic pretext.
We are already witnessing a slowdown in the world's largest economy - China, which is expected to continue in 2016. The economic recovery in the U.S. is unlikely to be significant enough to compensate for future losses. The EU, which from January 1 launched a DCFTA with Ukraine, also has elusive prospects for any significant growth.
What does this mean for our country? The obvious thing is that the price of the key articles of our export - food and metal - will decline further. This means that Ukraine’s foreign economic prospects are not so rosy. There will be few advantages for the Ukrainian exports in 2016. And it will require the authorities to search intensively for Ukraine's place on the world economic map. Meanwhile, the world economy is being reshaped and rebuilt against the background of the general economic and geopolitical trends. So, rebuilding our own home and finding our place in the world economy is already necessary today, by taking key strategic decisions.
Olesia Safronova (UNIAN)