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Economic reform program implementation: independent view

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For the last 2 years the process of social and economic changes has really sped up. Many reforms have been started. However, most of initiatives as of now deal only with belt-tightening measures or technical reforms. Some reform efforts are ambiguous in their results.

Changes to tax law and its codification were the most striking reform efforts over the last 2 years. Although no definite positive results of the tax law overhaul are seen by now, the introduction of unified payroll tax, new rules for simplified taxation system and the plan for tax rates’ reduction are important for Ukraine. Still the tax reform has not become a systemic because many legal tools of administration pressure on business remained intact. As a result Ukraine keeps lagging behind at the world’s business climate ranks.

Pension reform was the second in relevance and scope. The first stage of the reform that deals with belt-tightening (increasing pension age and minimal job seniority) has been completed. Still ability and political will for real reforming of the pension system are under question. In particular, the lion’s share of successful transformation to second pillar pension system (mandatory state-funded pension insurance) depends on the development of financial markets in Ukraine, what is still doubtful.

Some potentially positive changes were initiated in healthcare area. The pilot projects on healthcare reforms have been already launched. In 2012 new organizational structure of healthcare facilities and new mechanisms of financing will be tested. Although that is only a start and there is no guarantee that the pilot projects will bring positive changes to the whole system, the positive thing is that reforms in these area at last took off.

Many changes were seen in the direction of business deregulation and entrepreneurship development. The number of business licenses and permits was indeed reduced, the network of licensing centers was extended and some laws on business license optimization were voted. However, polls show the worsening of business climate in Ukraine – it remains one of the most unfavorable in the world. Inspections take place often and unexpectedly and the inflicted losses are never compensated.

One-sided progress is seen in privatization. The process was unfrozen and a new body for effective management of state property was established. However the sale of state property takes place predominantly with one bidder (despite formal signs of competition) and the established body for state property management still has not started operating. Moreover, the efficiency of this body is questionable.

Concerning agriculture and land reforms, there is little to say. Although we mark some progress in creation of land cadaster and the fact that government came close to the creation of land market. At the same time state interventions into the sector multiplied. The government also attempted to create a half-state monopoly on grain export market. 

For more details, please, see the report “Economic reform program implementation: independent view” (ukr).

March 4, 2012