Speech by the Minister of Finance Oleksandr Danylyuk at the Annual Meeting of the European Bank for Reconstruction and Development

5/18/16

Ladies and Gentlemen, allow me, first of all, to thank you for having me here. On behalf of the Ukrainian government let me express our gratitude for your kind support of my homeland at these times. Your input and attention is vital for our country.

There has been a lot of discussions on perspectives of Ukrainian economy. Some say that the glass is half empty. The other say that it is half full. I’ve been a Minister of Finance for 5 weeks and I propose you to forget about the glass and discuss the content.

We face two major challenges in Ukraine. Russian aggression is the first one. Corruption is the other one.

Still, 100% of Ukrainians have a strong will to change the country. So do I.

The first step to solve the problem is to discuss it. Let me just remind you briefly on what’s been done after Maidan’s victory.

- Ukraine has managed to stabilize its macro-economic situation which is the very basis for the growth. The public finance deficit was reduced by 80% in just a year, down to 2.1% of GDP. The Ukrainian currency has been stabilized.
- We took a hard and definitely highly unpopular decision to increase domestic gas tariffs by 450% to effectively put an end to massive energy stealing. Moreover, as a strong commitment to the IMF program, we announced further tariffs increase last month by 100%. As the result, we decreased domestic gas consumption by 20% in 2015 and became less dependent on Russian energy supplies.
- We’ve launched a massive deregulation campaign. E.g., in the agricultural sector only we have cut the number of licenses almost by half – from 56 to 30.
- We’ve fixed loopholes that allowed tax evasion and introduced an electronic VAT system to put an end to the practice of fraudulent VAT refund claims.
- We’ve cleaned the banking sector taking out more than 60 banks with liquidity problems out of 180 banking institutions in the country.
- We’ve made significant steps towards eliminating corruption loopholes by implementing e-government and fostering transparency. All state property registers, government spending details and all the assets and tax declarations of Ukrainian state officials are now available online, an initiative yet to be undertaken by many European countries. Every citizen is now able to trace the payments of public authorities and state-owned enterprises on a daily basis.
- An electronic procurement system is being rolled out across the Government, potentially saving taxpayers about USD 2.3.
- A New National Police force was established in more than 20 cities and by the end of June this number will have increased to more than 30 cities. In Kyiv, 80% of the Police senior management and 70% of middle management was dismissed. All the new Police officers are hired through an open competitive process.
- The newly established National Anti-Corruption Bureau has already investigated more than 80 cases of alleged corruption, including five judges, a prosecutor, a high-level civil servant and a rector of a university.

As the result, after almost two years of recession, our GDP grew by 1.4% in the last quarter of 2015 (compared to 3rd quarter of 2015) and the IMF forecasts 1.5% GDP growth for 2016. After 42 months of continuous decline, Ukraine’s industrial output has increased for the first time in February by 8%.

You can’t solve the problem just by discussing it. At the end of the day we have to deliver.

In the following 100 days the Government is set to implement the following reforms.

- Starting from this year we are implementing the 3-years state budget planning. We’ll change the spending philosophy for the state budget funds. Each public body must formulate its mission and provide personalized service to the cititzens. No mission – no money.
- The Ministry of Finance will become a driver of reforms. We’ll initiate a radical change in education, healthcare and social welfare by introducing new funding mechanisms.
- We’ll overhaul the tax police. Instead of enforcing rule of law in the tax system the tax police became one of the sources of corruption. We intend to create an analytical body inside the Ministry of Finance, that will clean up the system, identify loopholes and go after the biggest offenders.
- One of the key priorities of our Government is the comprehensive reform of the State Fiscal Service including the reform of tax and customs administration, assignment of new heads of these bodies based on open contest procedures, crackdown on corruption and simplification of the rules. This is my area of responsibility, so I will start practical changes in this area immediately focusing on the simplification of administrative procedures. The Ministry of Finance is now entitled to approve all regulations adopted by the tax authorities. We will revise all of them with the participation of business and citizens.
- In order to significantly scale up investments into energy efficiency, the Government with support of EU Commission and German Government has created a concept of National Energy Efficiency Fund, which is one of our most important reform pillars. The Energy Efficiency Fund will serve as a financing platform for multiple Energy Efficiency programs and is expected to process up to 40 billion Euro of investments in the next twenty years.

I understand the investors’ skepticism. You have heard a lot of nice words, a lot of right words from the Ukrainian officials for the decades. However, I have serious arguments why the situation is different now.
- The Government has been formed as the result of political crisis. The reason behind the crisis was stagnation in reform efforts. The lesson is learned. We have support from the President, the majority in Parliament and the civil society.
- The Government has political will to implement reforms. We are aware that mock reforms would not be accepted by Ukrainian people.
- The Government is under constant pressure from the civil society and from the international community.

My country needs more than just investments. We need your expertise, your pressure, your presence.

I am here to learn. But also I’m here to remind you about Ukraine. We are the 43 mln. country with well educated, hospitable and hardworking people. You can’t find any other country in Europe with such a potential for growth.

Today the entry ticket is as cheap as never before. The reforms we are going to implement will help you to reap low hanging fruits of catch-up growth.

The Government launches a large scale privatization campaign in an open, fair and transparent manner. We adopted the Strategy for the State-owned banks reform and in the upcoming months the Parliament will adopt the law enabling us to start the process. One of the key points of the Strategy is the adjustment of the corporate governance system to the OECD recommendations. This will contribute to more stability in bank operations, improve banks’ performance and result in their better assessment by potential investors.

Speaking of which I am happy to announce that we plan to privatize our state-owned banks by the end of 2019.

The ambition of the Government is to prove that every word means a real action.

We welcome you to Ukraine.

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