Findings

During the period covered by this evaluation, the Bank Group helped Ukraine undertake several important reforms. Alongside development partners, the Bank Group helped the government stabilize the economy and the banking sector, improve the fiscal situation, establish the institutional underpinnings to improve governance, reform the health and pension systems, and enhance energy security. At the same time, a lack of attention to important enabling areas with systemic impact, such as justice sector and public administration reform, undermined the impact of reforms in several areas.

The Bank Group was well positioned to leverage opportunities arising from the events of 2014–15. Throughout the evaluation period, the Bank Group had a clear understanding of the challenges and vulnerabilities and presented a well-prioritized picture of what needed to be done. The Bank Group was able to leverage long-standing partnerships with diverse counterparts and a strong presence in the field. In the early part of the evaluation period, in the face of weak demand for reforms, the World Bank invested in building country knowledge and local partnerships and was well prepared to adjust its strategy and expand all aspects of its engagement when a political opening presented itself. After 2014, the World Bank made a fundamental adjustment to its original strategy, reallocating funds from slow-moving investment projects and supporting critical reforms through budget support operations.

These achievements are not irreversible. In Ukraine’s volatile political environment, it is difficult to gauge how well the policy and structural changes facilitated by the Bank Group will withstand pressures from powerful vested interests and shifts in public opinion. Ukraine’s economy remains vulnerable to a variety of macroeconomic and political risks, aggravated by the uncertainties of the COVID-19 pandemic. Vested interests remain well organized, and populist pressures for policy reversal and risky macroeconomic initiatives have been increasing. Other vulnerabilities include weak domestic ownership of some reforms, a lack of a robust national proreform consensus, and inadequate attention to institutional building in critical enabling areas (judiciary, public administration, decentralization, and regulatory capacity).

Some important reforms supported by the Bank Group have not produced tangible improvements in the daily lives of the general population. The establishment of high-level anticorruption institutions has not translated into a sustained increase in prosecutions in cases of corruption or improved public perceptions of the pervasiveness of corruption. Similarly, significant institutional and structural reforms in energy and social sectors (health, pensions), while important for resolving the fiscal crisis and reducing opportunities for corruption, have not yet resulted in higher levels of private infrastructure investment or improved service standards. A lack of attention to justice sector and public administration reform has undermined the impact of reforms in several areas.

Partnerships were an important aspect of the Bank Group’s engagement during the review period and helped mobilize and leverage significant bilateral funding. The World Bank team helped coordinate various donor activities in several areas that were central to its own strategy and provided considerable analytical input to increase the overall effectiveness of multidonor programs. Bank Group partnerships were especially effective and well-coordinated in the context of macroeconomic stabilization. Development partners drew extensively on the World Bank’s country knowledge and high-quality, just-in-time technical assistance in key sectors (such as energy, health, and social protection).

The strength of the obstacles presented by vested interests was obvious in the lead-up to and throughout the evaluation period. A clearer initial sense of the results chain leading to effective enactment and implementation of key legislation might have highlighted potential points of stress and risks to the achievement of results earlier in the process. This understanding would have pointed to the need for more deliberate attention to judicial and parliamentary constraints and the need to build demand for better governance and commitment to follow up in operations with the financial sector. Even though other development partners “led” on judicial reform, given the importance of the court system to building effective financial sector crisis preparedness, the Bank Group might have sought to play a bigger role in this area.

Bank Group engagement with the nongovernmental sector contributed to the success of reforms in several areas. Engaging more directly and frequently with civil society was an effective way to foster public understanding for reforms and build demand for better governance. A considerable effort was made by the World Bank to include CSOs in consultations on various aspects of the World Bank–supported reform agenda. There were also instances of effectively integrating local knowledge providers into the delivery of analytical work and the monitoring of reform implementation progress at the local level. The FY12–16 CPS Completion and Learning Review (World Bank 2017f) concluded that, in Ukraine, Bank Group efforts had the biggest impact when the dissemination of Bank Group analytical work provided a platform for public debate, since it is a valuable tool to help civil society confront vested interests. In hindsight, the Bank Group could have invested more effort in explaining to the public the need for the reforms it supported (particularly in the financial sector).

Governance and anticorruption: Bank Group assistance raised the profile of the GAC agenda in Ukraine and helped mobilize and coordinate large amounts of bilateral funding to support reforms. In addition to support for establishing and strengthening a set of new apex anticorruption institutions, several sectoral engagements generated important anticorruption benefits, including through tariff and subsidy reforms in the gas sector, the modernization of bank supervision, and a deregulation to reduce administrative barriers for small and medium enterprises. Stronger engagement on justice sector reform could have contributed to progress in other areas, including in the financial sector.

Crisis response and macroeconomic resilience: The Bank Group made significant contributions to the international effort to help Ukraine respond to economic crises. On fiscal policy, the main achievements included the elimination of quasi-fiscal deficits in the energy sector and enhanced sustainability of the pension fund. The main outcomes in the financial sector included the restored health and stability of the banking system and enhanced supervisory capacity of core sector institutions and regulators. However, many critical fiscal and financial sector vulnerabilities remain, including weaknesses in tax performance and a largely unreformed state-owned enterprise sector (outside of energy). The pace of reform in the banking sector has slowed considerably as the risk to stability has diminished; NPLs are still high, negatively affecting private sector credit growth. In response to the COVID-19 pandemic, the World Bank was quick to restructure existing operations and prepare additional financing to provide immediate financial support.

Energy: The Bank Group partnership on energy in Ukraine was highly relevant to the country’s needs and made important contributions, especially in implementing tariff and subsidy reforms, informing market design and legislation, and seeding financing and institutional arrangements for investments to promote energy efficiency. However, there have been few tangible improvements in service delivery to consumers. The expectations embedded in reforms advocated by the World Bank since the 1990s—namely that unbundling, independent regulation, and privatization will mobilize private investments, depoliticize the sector, and enhance customer satisfaction—have yet to materialize.

Lessons

This CPE offers the following lessons:

1. Continuity of engagement during a period of weak demand for reform, including through strategically targeted analytical work, facilitated increased ownership within the government and positioned the Bank Group to respond quickly when a window of opportunity presented itself. During 2012–13, when there was little appetite on the part of the government for significant policy reform, the Bank Group invested heavily in analysis and in establishing partnerships at the technical level of government. These efforts helped the Bank Group respond rapidly after the change in political leadership. For example, sustained World Bank engagement enabled the Ministry of Finance, after a long period of limited interest in reform, to design and implement a comprehensive PFM reform.
2. Greater World Bank attention was needed in the justice sector, given its importance to the efficacy of reforms across a range of other sectors. Entrenched interests often used the justice system to neutralize the impact of reforms in other sectors, thereby undermining the credibility of the broader reform effort and commitment to change. Lack of direct World Bank engagement in the justice sector adversely affected the effectiveness of reforms in specific areas, particularly anticorruption reforms and reforms in the energy and financial sectors. In anticipation of significant engagement in Ukraine once military aggression against it ceases, the World Bank would be well advised to invest more in deepening its understanding of the links between specific weaknesses in the justice system and Ukraine’s ability to make progress on specific development objectives.
3. Effective outreach and engagement by the World Bank with civil society is important to help the public understand the reasons for reforms and the costs of not reforming. Although Bank Group strategies envisaged broad engagement with civil society and the private sector, implementation was uneven across sectors, with a communications strategy on financial sector reforms particularly lacking.
4. Institutional reforms that impose a burden on citizens need to compensate by making progress in service delivery. Despite many institutional and policy reforms, Ukrainians remain deeply skeptical about the overall progress and impact of reforms on their daily life. General public support for reform-oriented processes, such as EU integration, may help sustain some momentum on institutional reform. However, institutional reforms that impose painful adjustments on the citizenry (such as tariff increases) need to be paired with improvements in service quality, including in infrastructure.