President of the World Bank Group Jim Jong Kim paid an official visit to Ukraine, which became a significant event indeed because the last time the head of one of the most influential global financial institutions came to Kyiv was some 15 years ago.
The answer to the question "Why now?" seems obvious. On the one hand, the World Bank over the past few years has invested in projects in Ukraine worth almost $5 billion, which far exceeds the country's quota. And most of the funds will have to be returned. On the other hand, the progress of reforms coordinated with Ukraine’s major financial partners has slowed down in several key areas: privatization bill was adopted only in the first reading, land reform has been postponed indefinitely amid resistance on the part of populists and the agrarian lobby, while the words on creating an anti-corruption court still remain words, and the adjustment of gas tariffs in line with the import parity has also been postponed.
The World Bank chief was highly diplomatic, declaring an unprecedented rate of reform in Ukraine over the past few years
Jim Jong Kim held his first meeting on Ukrainian soil with Prime Minister Volodymyr Groysman. The World Bank chief was highly diplomatic, declaring an unprecedented rate of reform in Ukraine over the past few years. The banker also assured that he believes in the ability of the president and prime minister to stay at the helm of the entire reform process in Ukraine and accelerate them for the benefit of citizens. As part of this reform, the head of the World Bank stressed the need to establish as soon as possible an anti-corruption court. According to Jim Yong Kim, the introduction of the new institution into Ukraine’s anti-corruption infrastructure will be decisive for many investors in their decision-making process to invest in Ukrainian assets.
WB head also recalled that the establishment of the Court is among the country’s obligations to continue cooperation with its other key financial partner, the International Monetary Fund. In addition, the president of the financial organization stressed the importance of carrying out land reform, which would allow creating a farmland market and, thereby, accelerate economic growth.
During the meeting, the WB president touched upon the issue of pension reform, saying that its adoption was a courageous step on the part of the Ukrainian authorities. However, while expressing his principled support for the reform, Jim Jong Kim noted that the World Bank does not support the amendments made to the text of the draft law before its adoption, and it "would have been better if the articles weren’t added to the reform law".
At the end of his visit, Jim Jong Kim expressed confidence that farmland, anti-corruption, healthcare, and pension reforms would bring bright future to Ukraine.
At his meeting with Ukrainian President Petro Poroshenko, the World Bank president, among other things, expressed readiness to support the implementation of healthcare reform, including expert and financial assistance. At the end of his visit, Jim Jong Kim expressed confidence that farmland, anti-corruption, healthcare, and pension reforms would bring bright future to Ukraine.
But at the same time, the WB president admitted that he had not heard from the Ukrainian authorities any specific deadlines for the establishment of the anti-corruption court, the cornerstone of continued financial support from the IMF, and therefore other financial partners. Neither has he heard any specifics on land reform.
Nevertheless, the World Bank reported that they do not see the lack of an independent supervisory board in Naftogaz of Ukraine as an obstacle to granting Ukraine a loan for the gas purchase in the amount of $500 million. Also, Jim Jong Kim reported on the bank's readiness to financially support land and healthcare reforms. And, perhaps, these were the only specific notions voiced by the WB chief during the visit.
Thus, his arrival looked more like an attempt to see what kind of people rule the country where the financial institution has invested some $5 billion over the recent years. And also, it was about synchronizing steps before drawing up financial plans for the next year – to figure out whether is it worth expecting reform from Ukraine and increase support, accordingly, or those additional funds will be more useful in other areas.
There is no doubt that the lack of specific deadlines for the required reforms blurs Ukraine’s prospects for international financial support. After all, according to Jim Jong Kim, the World Bank is considering the possibility of increasing the financing of projects in Ukraine, but only together with the IMF, and is unlikely to run ahead of the train, allocating funds until the Ukrainian authorities fulfill their obligations.
Given the fact that Ukraine should deal with a $40 billion debt burden by 2020, there are practically no alternatives for Ukraine to cooperation with international financial institutions
Thus, the architecture of external financial support of Ukraine is tightly connected with the IMF assessment. The Fund's approval of the pace of Ukrainian reforms will turn on a "green light" for other donors and creditors. But, apparently, the light is unlikely to turn green at least until the spring of next year. By that time, the Ukrainian authorities will have to bring gas prices in line with the approved formula of import parity, as well as pass laws on setting up an anti-corruption court and transparent privatization. At the same time, land reform has been removed from the agenda of the IMF’s next review of its cooperation program with Ukraine (the Extended Fund Facility). However, as we saw, the World Bank insists on introducing the reform, as institution sees the creation of the farmland market as the key point of the country's economic growth. There is no doubt that land reform will sooner or later become an indispensable condition for continuing cooperation with the IMF.
Given the fact that Ukraine should deal with a $40 billion debt burden by 2020, there are practically no alternatives for Ukraine to cooperation with international financial institutions. After all, the country is not yet able to enter the market of foreign borrowings with such volumes - the rate is 7-8%, which is too expensive for Ukraine as the country’s external debt is approaching 90% of GDP, and its servicing already costs about 10% of GDP.
At the same time, there is nothing extraordinary in the agreed reforms. All of Ukraine's neighbors have passed through such transformations, having chosen the path of progress, painful but necessary reforms, and integration into European structures. And they yielded great results, too. The economy of neighboring Poland with a population of 38 million is four times larger than Ukraine’s, while Ukraine still fails to reach a GDP level of 1990.
Without accelerating economic reform, as well as appropriate financial support from international financial institutions, the bright future that the president of the World Bank predicts for Ukraine might as well never come.