On December 6, 2007 the World Bank’s Board of Executive Directors endorsed a Country Partnership Strategy (CPS) for Ukraine covering the period of 2008-2011. The CPS outlines the priorities for the Bank Group’s engagement through lending and investments, analytical and advisory services, and technical assistance.
The strategy proposes a lending range of US$ 2-6 billion over four years, with annual lending levels modulated by a series of performance benchmarks, including progress in structural reforms, macroeconomic stability and improvements in the implementation of existing World Bank loans. In addition, the International Finance Corporation will continue to invest significant resources to support the private sector in Ukraine.
Ukraine is a lower middle income country, with a GDP per capita of US$1940 in 2006. It is the second largest country of the former Soviet Union with a population of 46 million. Ukraine suffered one of the steepest declines of any of the successor states of the former Soviet Union, with GDP falling to 45 percent of the 1991 level by 1998. Since 2000, however, Ukraine has enjoyed a strong economic recovery, with growth at around 7.5 percent per year on average. Structural change has started but remains incomplete. The services sector has become more important, while agriculture has declined as a share of GDP and employment. The industrial sector remains large and dominated by capital-intensive branches such as iron and steel and industrial chemicals.
Recent Economic Developments and Risks, Challenges, and Government Reponse
Despite frequent government changes and significant political volatility, the basic vision of economic development for the country is broadly shared between all main political forces. The development vision includes a commitment to closer integration with Europe and with the world economy at large. This CPS builds on an analysis of Ukraine’s key development challenges. Ukraine’s impressive recent economic performance is due to a combination of factors, including progress in key dimensions of building a market economy, the degree of the country’s initial output decline, and the good fortune of a highly supportive international environment. To sustain growth into the future, however, Ukraine will need to address three key challenges: (i) the improvement in competitiveness, (ii) the reform of public finance and the public sector to improve service delivery and make growth socially inclusive, and (iii) tackling weaknesses in governance.
In preparing this CPS, the Bank, together with the authorities, has developed an operational framework to select programmatic areas for its future engagement. The framework proposes a typology of programmatic interventions, including core programs, development programs, and advocacy prgrams. A particular focus of the CPS will be on non-lending interventions, with particular attention placed on timeliness, dissemination and communication to achieve greater impact. The framework also takes into account the specific role of the IFC.
Implementation risks in Ukraine are considerable. The track record of implementation, particularly in the investment lending portfolio, is poor. Ukraine has the lowest disbursement rates among any IBRD borrower, although there have been somesignificant recent improvements. The main sources of implementation risk fall into three categories: (i) lack of ownership, (ii) cumbersome internal procedures which are inconsistent with World Bank procedures, and (iii) policy delays or reversals. The current CPS imposes greater limits on the number of new projects being prepared, thereby forcing the authorities to coordinate more effectively. The CPS also aims for greater ownership of the AAA work and the planned Innovation Fund would be the strongest expression of a new partnership where client codetermination of the focus areas for Bank advisory services would result in greater impact.
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