Ukraine - In Dire Need of Economic Reforms

While Ukraine is facing a series of dramatic geopolitical, domestic political and economic challenges, international attention is concentrated on geopolitical threats and the violation of Ukraine’s territorial integrity. However, pressing economic questions must also be addressed, says writes Marek Dabrowski for Bruegel, a European think tank specializing in economics.

He argues that the unsatisfactory results of previous reform rounds were very much responsible for the recent political crisis and the fragility of the Ukrainian state. Most importantly, successful economic and institutional reforms are critical for attempts to consolidate both state and society and to prevent any new authoritarian drift.

Executive summary:

Apart from threats to its national security and territorial integrity, Ukraine faces serious economic challenges. These result from the slow pace of economic and institutional reform in the previous two decades, the populist policies of the Yanukovych era and the consequences of the conflict with Russia.

The new Ukrainian authorities have made pro-reform declarations, but these do not seem to be supported sufficiently by concrete policy measures, especially in the critical areas of fiscal, balance-of-payment and structural adjustment. Also, the international financial aid package granted to Ukraine has not been accompanied by sufficiently strong policy conditionality.

Ukraine urgently needs a complex programme of far-reaching economic and institutional reform, which will include both short-term fiscal and macroeconomic adjustment measures and medium- to long-term structural and institutional changes.

Energy subsidies and the low retirement age are the two critical policy areas that require adjustment to avoid sovereign default and a balance-of-payments crisis.

To read the full article on Bruegel's website, click here.

Marek Dabrowski is a Fellow at CASE – Centre for Social and Economic Research in Warsaw, Chairman of the Supervisory Board of the Centre for Social and Economic Research CASE – Ukraine in Kyiv and Professor at the Higher School of Economics in Moscow.

Photo courtesy of alxpn.