The Ministry of Economic Development and Trade of Ukraine has developed strategic principles for economic growth in Ukraine. This strategy is detailed in a new document “The Way to Prosperity”, developed jointly with the Centre for Economic Strategy (CES). This document defines the most important principles for restructuring of state bodies and carrying out reforms:
- Supremacy of law
- Protection of property rights
- Zero tolerance to corruption
- Free and fair competition
- Small but effective state
On June 10, at KSE the Minister of Economic Development and Trade of Ukraine Aivaras Abromavičius and a team of experts presented the document “The Way to Prosperity” to mass media. Yuliya Kovaliv, Deputy Minister of Economic Development and Trade of Ukraine, Ivan Mikloš, Senior Counsellor to the Minister of Economic Development and Trade and CES co-founder, Olena Bilan, Chief Economist at Dragon Capital and CES Senior Adviser, and Hlib Vyshlinsky, CES Executive Director, participated in the presentation.
“These principles have to become fundamental for state policy in the economic field. These are the criteria that each draft law and each decision of the Cabinet of Ministers have to correspond to”, said Aivaras Abromavičius, the Minister of Economic Development and Trade of Ukraine. He outlined how violation of these principles during Ukraine’s previous years of independence was the main reason that the country has not realized its potential over the past two decades.
“Our document is not about what should be done on the path towards economic reforms. What should be done is already defined in other strategic documents, which are certainly correct. This document provides the framework and logic of WHY and HOW reforms need to be carried out,” explains Ivan Mikloš, who led the team of external experts. “Reforms must be fast, deep, and comprehensive, they must be based on these principles. This is the experience of other successful countries, which proves that following these very principles is a prerequisite of successful reforms. At the same time, the connection between macroeconomic stability and structural reforms is important. Macroeconomic stability means stable and sustainable finances, low inflation, a healthy banking sector and predictable national currency exchange rate. Without this, even if other reforms are carried out, it will be impossible to make substantial progress. Ukraine has already made some progress in these areas, however, it is necessary to carry on. As for structural reforms, in this document we outlined five directions that require considerably more advanced and rapid progress. Political unity plays a key role here, as does commitment to implement reforms. Strong leadership and communication of reforms are key components. Success in these areas is currently lacking.”
Hlib Vyshlinsky explained which analysis the experts in the working group relied on when making conclusions. “Before 2014 in Ukraine there was what János Kornai called a premature social welfare state. The level of GDP in 2014 was only 70% up from the level in 1900, however, politicians are still trying to maintain broad social obligations as well as protect the role of the state in the economy. Last year, government spending exceeded 50% of GDP; in particular, over 25% of GDP was spent on social goals. However, it was not always like this in Ukraine. Waves of populism increased this share from 35% in the late 90s and beginning of 2000s, when the Ukrainian economy started to recover after a period of market transformation. Because of such policies, which Ukraine cannot afford, last year’s budget deficit together with the deficit of Naftogaz (this means gas subsidies, therefore they are budgetary expenditures) were over 10% of GDP. We observe that each crisis (1998, 2008, and 2014-2015) has resulted in periods of sharp financial destabilisation together with falling economic activity. Eventually, it always had the same result – reduced credibility of the hryvnia, high interest rates, which led to a continuous reduction in the share of investments to GDP. For the last five years, the share of investments to GDP in Ukraine was at the level of 17-18% of GDP, while in Poland it reached 20% of GDP. In 2014, the investment share fell to 14% of GDP, while consumption reached 90% of GDP. Policies that contradict the principles outlined in the presented strategy document have led Ukraine to the edge of the abyss.”