No Reforms – No MFA for Ukraine

macro-financial_assistance
Economic and Financial Affairs || European Commission

In the first days of December, it became clear that Ukraine has failed to receive the third and final tranche of the MFA III. Initially, the MFA III at EUR 1.8 bn was agreed in 2015 under a number of conditionalities that envisaged 22 measures in the areas of energy, public financial management, anticorruption policy, etc. The previous progress in reforms allowed Ukraine to receive the first and second tranches of the MFA (in 2015 and in 2017).

Overall, the macro-financial assistance (MFA) of the EU is a budget support to Ukraine, which is provided under certain conditionalities. Ukraine fulfilled a large share of policy commitments taken by Ukrainian authorities within the MFA III. It established essential anti-corruption institutions: the National Anti-Corruption Bureau of Ukraine, the National Agency for Prevention of Corruption, and the Specialized Anti-Corruption Prosecutor’s Office as well as launched e-declarations of public officials. Big progress in energy reforms was also achieved. Ukraine also improved public finance management and launched the public administration reform.

However, four of the conditionalities envisaged in the Memorandum on the MFA III were not fulfilled:

  1. The automatic verification of e-declarations of income and assets of public officials was not launched. As a result, the launched system of e-declarations did not become the instrument in fighting corruption. In the framework of this system, thousands of declarations were collected, but only a few were reviewed. The automatic reviews were required not only in the MFA conditionalities, but also in the IMF Program.

  2. Ukraine failed to end a moratorium on timber exports, which was previously introduced to protect domestic woodwork manufacturers. However, this ban does not comply with Ukraine’s commitments taken in the Association Agreement with the EU and the membership in the WTO.

  3. The Draft law on the Credit register was not approved. The Parliament again failed to approve the law on December 7.

  4. Ukraine also failed to launch an electronic system that identifies and verifies the beneficiary owners of the companies.

Recent attempts of Ukrainian authorities to limit the powers of anti-corruption institutions again put under the question the possibility of negotiating another MFA in the nearest future. The EU is unlikely to approve MFA IV if Ukraine does not fulfill aforementioned four measures as prior actions. Therefore, the Government and the Parliament should increase their efforts in fighting corruption and fulfilling other commitments to ensure support of international donors to Ukraine in the future. This support is essential for the future sustainability of the country taking into account large FX debt payments in 2018 and 2019.

Oleksandra Betliy
The Institute for Economic Research and Policy Consulting - Kiev