Day two of URC2025: what will be the consequences of abandoning reforms

Before the full-scale invasion, URC – Ukraine Recovery Conference – was called Ukraine Reform Conference.

After most of the announcements of support on the first day, the second day was more about discussions about the future. And, in fact, about the reforms needed in various sectors, as well as the challenges and opportunities that need to be addressed.

* *

World Bank Director for Ukraine Bob Saum clearly outlined the areas that currently require attention:

– macroeconomic stability

– business environment

– critical infrastructure

– labour resources and social protection

**

In fact, we are currently seeing failures rather than improvements in the business climate.

The authorities are systematically slowing down reforms that would reduce the risks for businesses from interacting with the state.

First, the government postponed the start of customs reform and the competition for a new head of the customs service for six months.

This week, under a trumped-up pretext, the Cabinet of Ministers, contrary to the law, refused to appoint the head of the Economic Security Bureau chosen by the commission.

In the first case, as a result, Ukraine has already failed to meet its obligations to the IMF. In the second case, the same will happen at the end of July, when the promised deadline expires.

An immediate statement by business associations on the same day showed that this reform is needed first and foremost by business, not the IMF.

But the authorities are determined to maintain direct control over all law enforcement agencies, which allows them to attack any business at any time.

This is clear to the European Union, which Ukraine aspires to join. In response to my question at one of the URC panels, Anna Jarosz-Friis, Director of Ukraine Service at DG ENEST (European Commission), acknowledged that the delay in such reforms is negatively affecting the business environment.

It is clear that European partners, whom Ukraine is now defending from Russia, have become much more lenient towards the disruption of reforms. And they will continue to give money to Ukraine for ‘security services’.

But such behaviour by the Ukrainian authorities is likely to slow down our path to the European Union. No one needs another Hungary.

***

At the end of the conference, the World Bank and the University of Chicago presented a very interesting study.

It shows that over the last 20 years, especially after 2008, the rate of new business creation in Ukraine has fallen significantly. Many small businesses have become ‘stuck’ in their development and have stopped growing. Markets have become increasingly concentrated, with state-owned enterprises growing in share, even though they are less productive. Accordingly, productivity growth rates remain low.

The reasons for this are barriers to market entry for new businesses, in particular due to unreformed, poor institutions. They block increased competition, innovation and productivity growth.

Do you think this is about unreformed customs, the ESBU and other law enforcement agencies? You are not mistaken.