Ukraine - Country assistance strategy

Document of The World Bank FOR OFFICIAL USE ONLY Rept,t Xa. 156/4-UA MEMORANDDUM OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRIJCTION AND DIVELOPPENt TO THE EXECUTIVE DIRECTORS ON A COUNTRY ASSISTANCE STRATEGY OF THE WORLD BANK GROlJP FOR [IKRAINE June 3, 1996 Country Department IV Europe and Central Asia Region This document has a restricted distribution and may be used by recipients only in the perftormdance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization, . . . _ _ . | ._ . . .. - . J..  CURRENCY EQUIVALENTS (as of February 22, 1996) CLurrenicy Unit = Karbovanets US$I = 188,000 1 Karbovanets = US$0.0000053 WEIGHTS AND MEASURES Metric System FISCAL YEAR January I - December 3 1 ABBREVIATIONS AND ACRONYMS AGSECAL Agricultural Sector Ad justimienit Loan CFC Chl-lorofluorocarbon CPAR COunLtrV Procuremenit Assessmenit Report CPI Consumer Price Index EBRD Europeani Banik for ReconstruIctionl and Development EDAL Enterprise Development Adj ustimienit Loan EDI Economic Development InstituIte ED)P Export Development Project ESW Econiomic and Sector Work EU (TACIS) European Union Program of Technical Assistance for the Confederationi of Indepenldenlt States FIDL Finanicial Institutions Development Loan FSAL Finanicial Sector Adjustmenit Loan FSU Former Soviet Uniion GDP Gross Domestic Product I AEA Iinterinationial Atomiic Energy Agency IBL Institutioni Buildinig Loan IBRD Interinationial Bank for Reconstruction and Development IDA Interinationial Development Association IDF Institutionial Developmenit Fund IFC International Finance Corporation IMF Interinationial Monetary Fund KBV Karbovanets MIGA Multilateral Investnienit Guaranitee Agency MOFER Ministrv of Foreign Economilic Relations MPP Mass Privatization Program NBU National Batik of Ukraine PER Public .Expenditure Reviewv SBA Standby Arrangemenit SPF State Property Funld SOE State Owvnecd Enterprise S1TF Systemic Transforimiationl Facility' UNCTAD lJUnited Nations Conferenice on Trade and Development USAID United States Agency for Interinationial Development VAT Value Added T ax WTO World Trade Organization  FOR OFFICIAL USE ONLY MEMORANDUM OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A COUNTRY ASSISTANCE STRATEGY OF THE WORLD BANK GROUP FOR UKRAINE Contents A. RECENT DEVELOPMENTS: A DIFFICULT REFORM PROCESS ........... ...................... 1 A Potentially Rich Economy in Need of Restructuring ...................... .......................... 1 Inadequate Policies Between 1991 and 1994 ............................................................. 1 Since 1994 There Have Been Reasons for Optimism ........................ ......................... 3 B. THE GOVERNMENT HAS AMBITIOUS REFORM OBJECTIVES ..................................... 3 Private Sector Reforms Are Under Way ............................................................... 4 Action is Needed on Restructuring the Public Sector .................................................... 5 Insufficient Consensus On Social Reforms ............................................................... 7 Environmental Sustainability is a Government Priority .................................................. 8 C. UKRAINE'S ECONOMIC OUTLOOK WILL DEPEND ON THE IMPLEMENTATION OF REFORMS ............................................................... 9 Achieving Ukraine's Full Potential Will Require Commitment to Reforms ......... .............. 10 The Outcome of Ukraine's Reform Program Will Also Depend Upon the External Environment ............................................................... 12 Derailment of Reforms Would Cause Stagnation and Poverty .............. ......................... 12 D. A PROACTIVE BANK GROUP STRATEGY .............................................................. 13 Bank Involvement Will Be Based on the Pace of Reforms .................. .......................... 13 The Bank Group's Strategy Supports the Four Elements of the Reforms Agenda ................ 15 Efforts are Being Made to Improve Portfolio Implementation .............. ......................... 18 Aid Coordination and Cofinancing Are a Priority .................................... .................. 19 The Resident Mission Plays an Important Role ......................................................... 19 The Economic Development Institute is Very Active in Ukraine .................................... 20 Risks: Political Support for Reforms and the International Environment ......... ................. 20 E. AGENDA FOR BOARD CONSIDERATION ............................................................... 20 Attachment Table 1: Framework for the Country Assistance Strategy Attachment Table 2: Ukraine 1996-98 Lending Program Attachment Table 3: Specific Triggers for the Liberalization and Ownership Change ANNEXES Annex Al Ukraine - Selected Indicators of Bank Portfolio Performance and Management Annex A2 Ukraine - Bank Group Fact Sheet FY 1993-1999 Annex A3 Ukraine - Summary of Economic and Sector Work Annex A4 Ukraine - Priority Poverty Indicators, Resources and Expenditures This document has a restricted distribution and may be used by recipients only in the performance of their |ocial duties. Its contents may not otherwise be disclosed wiLhout World Bank authorization.  A- Annex A5 Ukraine - Key Indicators Annex A6 Ukraine - Key Exposure Indicators Annex A7 Status of Bank Group Operations in Ukraine Annex C1 Ukraine - National Accounts Annex C2 Ukraine - Exports and Imports Annex C3 Ukraine - Balance of Payments Annex C4 Ukraine - External Debt Stocks and Flows Annex C5 Ukraine - Public Finance Annex C6 Ukraine - Monetary Survey Annex C7 Projected Arrears, Rescheduling, and Reductions in Debt and Debt Service  A. RECENT DEVELOPMENTS: A DIFFICULT REFORM PROCESS A Potentially Rich Economy in Need of Restructuring 1. Ukraine has tremendous economic potential. When it declared independence in August 1991 Ukraine became the second largest European country in land mass and the fourth largest in population (52 million people). It has a well-educated, highly skilled labor force. Its soil is rich- agriculture accounts for 20 percent of GDP. A good mineral resource base (coal and iron), diversified industries (46 percent of GDP), and a well-developed infrastructure provide a firm base for future growth. 2. Ukraine is a late reformer. A great deal needs to be done for it to reach its full potential. The reform effort is nearly two years old and there is still no clear consensus on economic policies. Basic economic structures require a major overhaul for Ukraine to become internationally competitive. Production is too energy intensive, and the economy relies on imports of oil products and natural gas from Russia and Turkmenistan for about half its energy needs. In 1991 Ukraine consumed about six times more oil per equivalent unit of GDP than is typical in Western Europe. Close to one million people are employed in the world's highest-cost coal industry. Inefficiencies like these were associated with a fall in per capita income from US$2,636 in 1991 to an estimated US$1,632 in 1995. These official figures may overstate the fall in output, however, since the informal economy has been expanding beyond the reach of government regulations and taxes. Inadequate Policies Between 1991 and 1994 3. Economic performance up to 1994 was discouraging. The breakup of the Soviet Union caused huge terms of trade losses for Ukraine because it had to start paying much higher prices for its energy imports. Between 1990 and 1994 imports of energy products rose from some 10 percent to 44 percent of total imports. This important shock complicated the already difficult task of transition. 4. Making matters worse, political developments made the initial policy response wholely inadequate. Conservatives and old-style industrial directors continued to dominate the Parliament after independence. As a result none of the three pillars of reform in post-socialist economies- macroeconomic stabilization, privatization, and market liberalization-was in place until July 1994. At more than 4,500 percent, inflation in 1993 was the highest in the world for a country not at war. In 1993 only 10 percent of assets were in private hands. Privatization efforts made minimal progress, especially relative to Russia or the Czech Republic. The limited price and trade liberalization that had occurred initially was rolled back by the government that came to power in the summer of 1993. By early 1994 administrative control over the economy was more or less as extensive as it had been under central planning.  2 Figure 1 Annual GDP Growth Rate 0% -5% -1 0% -15% -20%. -25% O _ N C' t n 0) 0) a) 0) a) 5. The terms of trade shock and weak policy response had disastrous economic outcomes. Between 1990 and 1993 agricultural production fell 20 percent, industry contracted 45 percent, and construction declined 54 percent. Open unemployment remained limited, but disguised unemployment (in the form of forced leave and part-time work) became widespread, affecting 3-5 million workers. Labor market weaknesses were reflected in real wages, which dropped 63 percent between 1990 and 1993. By 1994 the public finance deficit exceeded 8 percent of GDP, the current account deficit was around 6 percent of GDP, the stock of external debt (including arrears) reached US$7,200 million, and international reserves covered only 2.4 weeks worth of imports. Figure 2 Ukraine Monthly % Change of CPI 100 -- ..- 90 80 70 60 50 40 . . - 30 20 10 01 a) ) 0) - *mronthly inflation 12 nonth nioving average  3 Since 1994 There Have Been Reasons for Optimism 6. The situation started improving following the mid-1994 elections. The new President, Leonid Kuchma, called for a radical break from past economic policies. Efforts were made to control public finances-the budget deficit was cut to less than 5 percent of GDP in 1995. Monetary policy was tightened-the quarterly growth rate of broad money was reduced from 93 percent in the fourth quarter of 1993 to 8 percent in the fourth quarter of 1995. Mass and small-scale privatization started-by September 1995 14,000 small-scale enterprises had been privatized compared to fewer than 3,000 in December 1993, and by February 1996 about 47 percent of formerly state-controlled small enterprises were in private hands. Actions were taken to liberalize the economy-most domestic prices were freed, all quantitative restrictions on imports were lifted, and all export quotas were eliminated. 7. Initial results are encouraging. Inflation has fallen sharply, from monthly rates of nearly 20 percent in early 1995 to less than 3 percent in April 1996. The exchange rate is stabilizing. The impact of trade liberalization on export performance has started to be felt, with the nearly 20 percent rise in the volume of exports to Western markets in 1995, more than offsetting the fall in trade with other republics of the former Soviet Union. However, overall economic activity is still declining, although at a slower rate. After falling by more than 23 percent in 1994, real GDP dropped 12 percent in 1995 and 10 percent (on an annual basis) in the first quarter of 1996. Again, however, these data overstate the decline in output because they do not account for the expansion of the informal sector, estimated at about 40 percent of the overall economy. 8. A consensus on reform has not yet emerged. Opposition efforts to halt or at least slow the reform process have been a continuous problem. Parliament refused to adopt new revenue measures proposed by the Government to offset higher spending in the third quarter of 1995 and further contain the deficit. Parliament also tried to introduce complicated procedures for privatizing agroindustrial enterprises. This law was passed three times by Parliament, and each time it was vetoed by the president. Even the small-scale privatization program was threatened: Parliament considered a bill to transfer the responsibility for privatization of small enterprises to local authorities, many of whom are opposed to reforms and to the loss of direct control that results from privatization. B. THE GOVERNMENT HAS AMBITIOUS REFORM OBJECTIVES 9. The implementation of reforms in Ukraine will not be easy given parliamentary opposition and the continuous pressures of lobbies, representing managers and workers of public enterprises, coal miners, farming interests, and others. Despite these difficulties, the Government is committed to economic policies that will transform Ukraine into an efficient market economy and achieve socially and environmentally sustainable growth. Returning to pre-1994 policies is not a viable option because it would lead to more economic decline, increasing poverty and social problems. 10. The recent agreement with the International Monetary Fund (IMF), approved by the Fund's Board on May 10, 1996, indicates Ukraine's commitment to macroeconomic stabilization. Under the new program fiscal policy will be tightened to prevent the cash deficit from exceeding the 1996 target of 3.5 percent of GDP. Monetary policy will also be brought under tighter control in order to reduce inflation to 1-2 percent a month by the end of the year and to increase gross international reserves by about US$600 million. The Government agreed to bimonthly IMF reviews to monitor the program's progress and improve its chances of success.  4 11. Stabilization must be accompanied by far-reaching structural reforms. To achieve growth the Government plans to implement a structural reform agenda with four key elements: * promoting private sector activity * restructuring the public sector and recasting it in a supportive role * ensuring the social sustainability of the transition * ensuring environmental sustainability Private Sector Reforms Are Under Way 12. The structural reform agenda emphasizes the importance of an enabling business environment: well-defined property rights and privatization, deregulation and liberalization and strengthened financial sector. 13. Changes in ownership are a critical first step. The Government's ambitious mass privatization program calls for the privatization of 5,000 large and medium-sized enterprises by spring 1997. It also aims to complete small-scale privatization by the end of 1996. Moreover, barriers to entry for small-scale entrepreneurs have been removed over the past two years and surveys show that entrepreneurs no longer perceive access to real estate as an obstacle to starting and running a business. 14. The reform program will amend the Land Code to make it easier for farmers to withdraw their land and other property from collective and state farms, and abolish the six-year moratorium on the sale of land and land shares. No decision has been made on how to expedite housing privatization, however-by September 1995 only 30 percent of the 7 million housing units targeted for privatization had been sold and the pace of housing privatization is slowing. Although there are no legal obstacles to housing privatization, subsidized utilities and maintenance of state housing create a disincentive to privatize. 15. The legal and regulatory environment still needs improvements. A new civil code is being prepared, but more must be done. There is a need to review regulations and procedures affecting business registration, legalization of business activities, and compliance with various regulations. This review would be a first step in streamlining these regulations and procedures, essential for attracting new businesses and for encouraging firms to shift from the unofficial to the official sector. There is also a need to establish a legal basis for contract enforcement, for the protection and transferability of private property, and for dispute resolution and the handling of administrative appeals. 16. A great deal of progress has been made in the area of market liberalization. To encourage international trade, the exchange rate was unified, the maximum import tariff was fixed at 30 percent, nearly all import quotas and licenses were eliminated, and export restrictions are being lifted. Ukraine also has applied to join the World Trade Organization (WTO). The goal now should be to avoid reintroducing restrictions in the face of strong pressures by protectionist groups. On the domestic front, Government intervention in markets was reduced tremendously by abolishing the system of state orders at the national level. State purchases are now based on competitively established contractual obligations and are confined to the needs of budgetary organizations. The Government also has completely liberalized prices and services that remained under an administered system through late 1995, reduced general subsidies to households, and increased housing rents, transportation tariffs, and fees for communal services. Future reforms should include ending the practice of requiring sellers of certain goods to obtain approval for price changes, discontinuing price and profit margin controls on "artificial"  5 monopolies, abolishing the Price Inspection Units (charged with enforcing controls), and rescinding local authorities' discretion to regulate prices. 17. To complement liberalization, the Government should consider tax reforms that reduce the burden on the official private sector and encourage the expansion of output and employment. Naturally, the timing of such reforms will have to be carefully determined to ensure consistency with stabilization targets. At 35-40 percent of official GDP, the tax burden on formal sector activities is high. High tax rates encourage evasion and unofficial transactions. Some taxes are more damaging than others. For example, the 52 percent payroll tax-including mandatory enterprise and worker contributions for the Pension Fund, Chernobyl Fund, Social Insurance Fund, and Employment Fund-discourages the expansion of official employment and causes most new jobs to be in the shadow economy. Ukraine's large unofficial sector provides great potential for increasing the tax base. 18. A stable and efficient financial sector is one of the Government's objectives. To encourage the growth of commercial banks the former state banks were corporatized and partially privatized, and the tax rate on banks was lowered to 30 percent of profits, the same as for enterprises. Efforts were made at institutional strengthening; these included establishing a modern electronic payments system for large-value items, modernizing bank accounting systems, and establishing a collateral database. Despite these efforts, the banking system still faces serious problems-lack of competition, weak portfolios, and ineffective supervision. Accordingly, the Government is considering a large number of banking reforms based on a two-pronged strategy: dealing with banks in distress and setting up the framework for a sound banking system. The measures being considered include ending subsidized credit to enterprises, which damage the banks; enforcing new minimum capital requirements and tighter prudential rules on all banks; and encouraging banks to undertake regular external audits based on internationally accepted accounting standards. Action is Needed on Restructuring the Public Sector 19. The second Government priority is redefining the role of the public sector so that its focus is on supporting the private sector with key physical and social infrastructure. This transformation entails reallocating public resources and reducing the public sector's weight in the economy; changing public institutions to make them more responsive to the needs of a market economy; reviewing the role of local governments and their financial relations with the center; and reforming the energy sector. Progress in these areas is uneven. 20. Changing the level and composition of Government expenditures is essential. Current public spending levels, about 44 percent of GDP, are high by international standards and are inconsistent with the Government's desire to develop a market economy dominated by the private sector. Over the medium-term, spending may need to be cut by some 10 percentage points of GDP. The budget currently finances numerous goods and services that could be financed by the private sector, including explicit and implicit subsidies to agriculture, support for public industrial enterprises, housing and communal services, and transport and telecommunications subsidies. As Ukraine moves toward a market economy the Government must withdraw from these production-related activities and shift expenditures toward services that the private market cannot provide. 21. The Government's ability to implement reforms and to restructure the budget depends on strengthening the capacity of weak institutions. Ukraine inherited an incomplete, fragmented, and inexperienced central administration. In 1994 the central, regional, and local state  6 administration employed 345,000 people-about half the size of the central state administration in the United Kingdom, which has a similar population. Making matters worse, the state administration has areas of overstaffing and hidden unemployment. Moreover, the highly fragmented organizational structure supports 75 central bodies of executive power, two to three times the number of departments of state in most industrial countries. The state bureaucracy is largely inexperienced in policy formulation and resource management because under the previous regime these functions were centralized in Moscow. These problems are compounded by inadequate pay policies-since independence real civil service salaries have fallen by more than 40 percent, and the salary compression ratio is only 3.5:1. 22. Reforms in this area need to address five issues. First, more coherent policies could follow from a reduction in the number of ministries and other state bodies. Second, the responsibilities of ministries and departments should be redefined in line with the Government's new role in the economy. Activities like the formulation of sector policy, monitoring of sector performance, and the provision of public services should increasingly displace detailed bureaucratic regulation and production management. Third, management within the state administration should be improved. In particular, there is a need for greater delegation of management responsibilities to ministries and departments in return for greater accountability for performance. Fourth, pay policies should be changed. To attract and retain professional and technical skills to the civil service, real wages and salaries need to reflect market conditions. Finally, more attention should be paid to training civil servants. 23. The Government will also need to establish a consistent framework for relations between local authorities and the center. Local governments play a key role in providing such essential public services as housing, water, heating, education, health, transportation, and the social safety net. In 1994, for example, local budgets accounted for 65 percent of total spending on the social safety net, 82 percent of spending on housing and communal services, and 87 percent of spending on health. This role is likely to increase as the responsibility for social services that were once provided by public enterprises is shifted to localities. As a first step toward comprehensive reform in this area, local authorities should be provided with stable financing. The central government changes tax sharing rates with local governments every year, making it difficult to predict the revenue base at the local level and discouraging local resource mobilization and budgetary savings. To deal with this problem the Government should consider assigning appropriate taxes-e.g., property and land taxes-to local governments, and introducing a system that pools and shares them based on clear and stable criteria. 24. Nowhere is changing the role of the state as crucial as in the energy sector. To deal with the huge challenges facing the energy sector the Government has developed a four-pronged energy strategy. It adopted market mechanisms-including price adjustments and competition in supply and distribution-to allocate energy supplies and encourage energy efficiency. The strategy also emphasizes institutional restructuring: commercializing energy enterprises; redefining the role of government in policymaking, regulatory, and ownership functions; and establishing a market environment conducive to private sector participation. The third element of this strategy is sound environmental management through a framework that fosters environmental safety, including nuclear safety, among energy consumers and suppliers. Finally, the Government is promoting high-priority investments that increase the security and reliability of energy supplies in a cost-effective manner. 25. Many of the elements of this strategy are already being implemented. In the power sector, an independent regulatory authority was created, restructuring and corporatization are being pursued by breaking up vertically integrated monopolies and establishing a competitive wholesale market, retail electricity prices are being adjusted to reflect changes in supply costs, cross-subsidization of households  7 is being reduced, and the electricity supply is being suspended to non-paying customers. In oil production and refining, new market-oriented legislation on exploration and production is being prepared, prices for imported and domestically produced crude oil and oil products have been liberalized, and the process of corporatizing oil companies and refineries and privatizing marketing and distribution services has started. In gas the Government is establishing a liberalized wholesale market. 26. The Government is also determined to restructure the coal sector, which used to provide one- third of the country's energy needs and employs nearly a million workers. The Ukrainian coal industry is in a deep crisis. Between 1990 and 1995 output fell by about 50 percent. The industry is unable to cover its production costs. In addition to being uneconomic, many mines constitute a serious safety and health hazard. The Government is considering a comprehensive reform program for the sector, including liberalizing coal markets, establishing new corporatized entities by combining economically viable coal mines, washing plants, and marketing organizations; closing uneconomic mines; providing social protection to displaced workers; divesting social assets; and leaving the financing of investment to the mining companies. The adjustment will be difficult, requiring that many mines be closed and many workers be shed. Insufficient Consensus On Social Reforms 27. A recently completed World Bank poverty assessment found that the terms of trade shock and economic transition have imposed significant social costs on Ukraine's population. Poverty seems to be rising and now affects 28 percent of the population. The quality of health and education services-where important achievements were made under the previous system- has declined. Basic indicators such as infant mortality and life expectancy have deteriorated. Still, poverty remains relatively shallow, with most poor people clustered near the poverty line. Thus a resurgence in growth would help most families work their way out of poverty. A 10 percent growth in consumption, without a change in distribution, would reduce the poverty head count ratio by about 18 percent. Social safety net and health and education reforms should be high on the Government's list of priorities because they are essential to ensuring the economic, social and political sustainability of reforms that will lead to growth. Moreover, effective social policies will be required even after the economy starts picking up, to protect those poor who may be left behind. 28. The social safety net is unreliable. Benefits have traditionally been untargeted, covering around 18 million people (one-third of the population). As a result benefit amounts are very low and do not adequately help the poorest. Still, the system is expensive, absorbing 14.7 percent of GDP in 1994- of which 8.0 percentage points were absorbed by the Pension Fund and 5.6 percentage points went for consumer subsidies. 29. To provide effective social protection, the system must be reformed. Better targeting of benefits is an essential element of that reform. The Government, moving in that direction, has recently introduced a means tested housing subsidy. The Government is also studying options for reforming the pension system, including increasing the pension age, reducing the statutory old age replacement rate, lowering the maximum pension, and only partially indexing pensions to inflation. The poverty assessment found that poverty in Ukrainian households increases with the number of elderly in the household. This indicates the importance of ensuring that the system of means tested supplemental pensions operates effectively.  8 30. Despite serious health sector problems, needed reforms are not taking place. The Ukrainian health care system is typical of the Soviet model-highly specialized and fragmented, with an emphasis on tertiary care, which absorbs about 80 percent of total sector resources. The system has too many underpaid specialists and too many poorly equipped hospitals. Primary care remains underdeveloped, with virtually no general practitioners. Medical knowledge and training have not kept pace with best practice. Financial and management skills are scarce at all levels. There is also a shortage of public health managers and nurses. The economic and financial crisis has hit the sector hard. Vaccines, drugs, and equipment are in short supply. Wage and salary payments are made late, and arrears are building up. As a result, the already poor quality of service has deteriorated even further. Although ostensibly fully public and providing free services, the health system appears to have become partly privatized, since patients are increasingly expected to provide their own pharmaceuticals and to make side payments to medical personnel. 31. There is no consensus within Ukraine on the nature of reforms needed to improve the health sector's performance. A complete structural change is required, however. There is a need to emphasize integrated primary care services; to focus on public health and on maternal and child care; to improve vaccine quality; to close excess capacity; to reduce the number of doctors; to train managerial personnel and nurses; to shorten the average hospital stay; to encourage private provision and cost recovery; and to mount a public education campaign explaining the adverse effects of alcohol and smoking. 32. The education sector is also at a critical juncture. Financing difficulties are the most obvious signs of the crisis: in 1994 there were problems in providing textbooks to all general education students; the 1995 education budget is, in real terms, about half the amount of three years ago; and in manv districts teachers do not receive their salaries on time. A second component of the crisis is the widening mismatch between the skills and training provided by the educational system and the needs of the new market economy. The system is producing graduates for whom there is little demand, while enterprises in expanding sectors are having trouble finding workers with the skills they need-such as, finance and services. The Government's education strategy addresses some of these problems. The strategy aims to improve the relevance of school curricula by introducing new subjects that are useful in a market economy. It will also broaden the base of vocational and technical school programs, carry out intensive teacher training and retraining, strengthen institutional and management capacity, and increase the provision of textbooks. 33. But much more should be done. There is a need to increase cost recovery for room and board and textbooks, and to allow greater private participation in the provision of services and in textbook printing. Staffing in preschools and general education schools must be cut. Vocational training should be made much more demand driven. This would involve allowing students to choose between vocational schools and basing state financing on the actual number of students. Consensus has yet to be achieved on this set of difficult but important reforms. Environmental Sustainability is a Government Priority 34. Ukraine faces difficult environmental challenges. The Chernobyl nuclear power plant has drawn worldwide attention. It is a 4,000 megawatt plant comprising four units; one was destroyed in the 1986 accident and one closed after a 1992 fire. The remaining units are considered unsafe by many international experts, but they generate 6 percent of the country's electricity. Ukraine has also inherited an industrial sector characterized by oversized plants, unsafe working conditions, and inadequate resource conservation. Many plants are old and use environmentally harmful technology. The  9 environmental status of some cities and municipalities is also cause for concern. Serious problems with air and water pollution and waste management have developed as municipal services deteriorate. Water quality in the Dnipro basin is also an important problem. Industrial and municipal discharges and agricultural runoff into this river-which affects 70 percent of the population-has raised national concerns about water quality. Natural resources have been exploited inefficiently in an environmentally damaging manner. Low-quality equipment and weak management techniques are responsible for agricultural runoff and residual pollution from pesticides and fertilizers. Forestry management also lacks a proper emphasis on conservation. 35. The Government has taken important steps toward dealing with these problems. It recently signed a memorandum of understanding with the G7 countries agreeing on actions to be taken to close the two remaining units at Chernobyl. A 1991 Law on Protection of the Environment established fundamental protections and gave broad powers to the newly established Ministry for Environmental protection, which is now the Ministry for Environmental Protection and Nuclear Safety. The ministry has produced, with external cooperation, an environmental study to identify policy and investment priorities. A biodiversity plan is under preparation and a strategy for phasing out chlorofluorocarbons and other ozone-depleting substances is being developed. 36. The Government has also developed a strategy for environmental reform over the medium-term. Closing Chernobyl by 2000 is a key element of that strategy. In addition, the Government plans to modernize environmental standards and related regulatory infrastructure, decentralize authority for environmental management and regulatory activities to improve local programs and encourage accountability, address concerns about the pollution of the Dnipro River in cooperation with Russia and Belarus, strengthen management of protected areas and expand them to include some formerly public and military land, introduce conservation measures that respond to changes in agriculture and forestry, as well as to progress in land privatization; and support projects that combine economic opportunities with environmental or conservation measures. C. UKRAINE'S ECONOMIC OUTLOOK WILL DEPEND ON THE IMPLEMENTATION OF REFORMS 37. Successful implementation of the reform agenda described above will require a great deal of political resolve. Consensus on key elements of the agenda, especially in the social sectors, will need to be strengthened. The executive branch must reform itself and be given sufficient powers to implement the necessary policies rapidly and efficiently. Thus, current discussions of a new Constitution are bound to have an important impact on the reform process. But constitutional reforms are not enough to ensure successful economic policies. The executive branch must maintain its commitment to the economic agenda. This commitment may be affected by domestic political factors as special interests try to block the reforms. External political factors, such as the outcome of elections in Russia, could also influence economic reforms in Ukraine. Local political developments could also affect the pace and depth of economic reforms, especially in the social sectors since local governments are responsible for most government expenditures on education, health, and social welfare. The balance of power between central and local authorities was changed to favor the center in June 1995, when a constitutional agreement between Parliament and the president empowered the president to appoint the heads of oblast administrations and established a vertical line of executive authority down through subordinate level administrations. Constitutional provisions for and principles of local self-government will be redefined in the new Constitution.  10 38. The results of this political process will define Ukraine's economic development. Ukraine could follow the same path as leading Eastern European reformers (for example, Poland in the early 1990s) and implement the entire reform agenda. The economy would then fulfill its long-term potential, rapidly improving the welfare of the population. Or, political pressures could lead the Government to abandon reforms, with disastrous economic results. Neither of those two extreme courses is likely to materialize. Reforms will probably proceed at the same pace as has been observed since mid- 1994. The actual policies and reforms that will be pursued is difficult to forecast, however. Rather than try to predict exactly what will happen, the analysis here assesses the likely outcomes of the two extreme policy stances, which define the range of possible economic outcomes. Achieving Ukraine's Full Potential Will Require Commitment to Reforms 39. Ukraine's economy could adjust in a way similar to that observed in leading reforming countries, like Poland, in the early 1990s. Under this approach stabilization would be fast and convincing, containing the fiscal deficit at 3-4 percent of GDP and tightening monetary policy to reduce inflation to less than 25 percent a year in 1997 and to less than 10 percent a year by 2000. Structural reforms aimed at getting the private sector moving would also be implemented promptly. Small-scale privatization would be completed in 1996, and the privatization of large and medium scale enterprises and of agricultural land would proceed on schedule. Enterprises that are not privatized immediately would be made to face a hard budget constraint. Full liberalization of domestic and international trade would be completed in 1996. A new civil code would be passed. The Government's weight in the economy would be reduced. Government spending would be cut from 44 percent of GDP in 1995 to 40 percent by 2000, and total revenues from 39 percent to 37 percent. Structural reforms in energy and in public administration would also be implemented in 1996-97. Table 1: Summary Economic Indicators, 1994-2001 Rapid Reforms (percentages) 1994 1995 1996 1997-2000 2001 Growth of GDP -21.7 -11.8 -2.0 6.1 5.5 Domestic Investment/GDP 8.8 9.3 12.7 18.3 19.6 National Saving/GDP 2.7 4.8 9.3 16.3 17.7 Fiscal Balance/GDP -8.2 -5.2 -3.4 -3.5 -3.1 Real Export Growth 3.0 7.7 7.1 6.5 Real Import Growth -2.2 4.5 6.3 6.0 Current Account Balance/GDP -6.1 -4.4 -3.4 -2.0 -1.8 External Debt/GDP 31.5 23.4 26.3 28.5 27.5 Debt Service Ratio 2.0 8.1 7.5 9.8 10.4 40. Increasing national saving and investment is key to achieving stable long-term growth of around 5 percent, similar to the leading Eastern European reformers. The rise in government savings, the imposition of hard budget constraints on enterprises, and energy sector reforms that ensure that consumers pay for the energy they use could increase the national savings rate from around 5 percent in 1995 to around 17 percent over the medium-term. In 1994 Poland's domestic savings rate was 17 percent and Slovenia's was 25 percent. Public spending reforms would spur public investment-mainly in physical and social infrastructure-from less than 2 percent of GDP in 1995 to 3.5 percent in 1997 and 5 percent by 2000. Privatization, liberalization, deregulation, and tax reforms would encourage private investment, foreign and domestic. Thus the overall investment rate would rise from less than 10  11 percent in 1995 to around 15 percent in 1997 and 20 percent in 2000 (in 1994, Poland's and Slovenia's investment rates were 16 and 21 percent, respectively). The financial sector's role in mobilizing savings and allocating them to efficient investments make financial sector reforms extremely important. The ratio of M2 to GDP, a commonly used measure of financial deepening, could rise from around 15 percent in 1995 to 33 percent by 2000 (see table 1). 41. Eastern Europe's experience indicates that a large portion of initial growth will come from the services sector, which was repressed under central planning. If services grow 8 percent a year, their share in GDP would rise from around one-third of GDP in 1994 to more than 45 percent by 2004 (in 1994 the share of services in GDP was about 54 percent in Poland and 57 percent in Slovenia). This expansion would be made possible by small-scale privatization, privatization of urban land, deregulation of domestic markets, legal reforms that provide a stable environment where contracts are enforced, and tax reform. 42. Industrial and agricultural growth will depend on expansion into new export markets, for which trade liberalization is key. Removing regulatory hurdles to international trade, such as indicative prices, is necessary for export growth. Under this scenario of successful export growth, agricultural output would expand at the same rate as overall GDP, 5 percent. Such strong agricultural performance requires land privatization and the development of free and efficient markets for farm inputs and outputs. Ukraine's industrial sector needs massive restructuring to render it efficient and competitive and ensure that its future growth is sustainable. Initially this would imply eliminating excess capacity through downsizing, modernization, and closure. Hence the sector's medium-term growth rate is assumed to be around 3 percent, with most of the growth coming from new private investment. Achieving this result will require successful mass privatization, social sector reforms to support displaced workers and increase their mobility, market deregulation, adoption of a market-friendly civil code, and tax reform. 43. Ukraine would maintain creditworthiness. Exports' real growth would be around 6-7 percent a year. Imports of both investment and consumption good would also rise by 5-6 percent a year. Thus the current account deficit would remain manageable at about 2 percent of GDP. Financing this deficit through foreign borrowing or other capital flows should not be a problem, and all creditworthiness indicators would remain acceptable (see para 46). 44. Growth of output and consumption could be much greater than projected here if reforms encourage a shift from informal to formal sectors. Market liberalization and deregulation are particularly important, because they would reduce the costs of undertaking official business, hence providing a strong incentive for businesses to operate officially. However, liberalization must be sufficiently bold and credible to convince entrepreneurs of the benefits of shifting to the official sector. Deregulation at the micro and regional levels that reduces harassment and eliminates discretionary enforcement of regulations and laws is key to expanding official activity. The existence of a large informal sector makes it difficult to estimate private consumption and project its growth using official data. National accounts data imply a decline in real per capita consumption of about 20 percent in 1995, and the projections here allow for consumption to grow by 4-6 percent a year over the medium term. The implied estimates of the future levels of private consumption are probably too pessimistic. A survey of households carried out in the summer of 1995 for the poverty assessment found that the value of household consumption could be as much as twice households' official income, indicating that official statistics may be grossly overstating the fall in consumption.  12 The Outcome of Ukraine's Reform Program Will Also Depend Upon the External Environment 45. Four external factors could turn out to be particularly important. First, trade policies in partner countries are important for the success of Ukraine's efforts at expanding its agricultural and industrial exports, which are so important for future growth (para. 42). Ukraine's export markets are changing rapidly. In 1995 the volume of exports to FSU countries declined by 3 percent, while exports to the rest of the world, mainly Western markets, rose by nearly 20 percent. This trend is expected to continue, unless protectionist policies by actual and potential importing countries make it difficult for Ukraine to raise exports and get its economy moving again. Second, changes in the world prices for Ukraine's exports would also affect future income and growth. For example, agricultural exports will benefit, in the short run, from rising world grain prices. But in order to take advantage of this opportunity domestic prices of bread must be allowed to reflect market conditions, which would imply that many domestic consumers will increasingly substitute other staples (e.g., potatoes and carrots, usually grown on household plots) for bread. 46. The third factor concerns the availability of adequate external funding. If foreign inflows are not forthcoming, the high growth rates described in paras 39-42 could not materialize. Initially nearly all of those inflows will be in the form of borrowing. It is assumed here that between 1996 and 1999 net disbursements of new loans would average about US$1,500 million a year. Foreign direct investment would be attracted by the country's huge potential, stability, and successful reforms. Thus, it could rise from US$266 million in 1995 to nearly US$1,000 million in 2000 and US$1,200 million in 2005 (foreign direct investment to Poland in 1993 was US$1,715 million). External debt would be manageable. The stock of external debt would be around 20-30 percent of GDP and the debt service ratio would be less than 12 percent. This would occur because the reform program would ensure that the rise in indebtedness is accompanied by increases in efficient investment and faster growth. 47. Fourth, Ukraine's economy is very vulnerable to changes in the conditions under which it can import energy. In 1995 the value of energy imports, from Russia and Turkmenistan, was about 40 percent of the total value of imports (f.o.b.). In 1996 the price of imported gas from Russia is expected to increase by about 60 percent, but the impact of higher prices on Ukraine's balance of payments is to be offset by greater transit fees for Russian gas en route to Western countries. Ukraine's difficulties in paying for energy imports have sometimes led to an accumulation of debt and arrears. During 1995 Russia and Turkmenistan agreed to reschedule more than US$3,000 million of interstate debt and arrears on payments for gas deliveries. This difficult situation explains the high priority that the Government and the Bank place on energy sector reforms to raise efficiency and reduce Ukraine's dependence on imports (paras. 24, 25, 26, 65 and 66). Derailment of Reforms Would Cause Stagnation and Poverty 48. Halting the reforms would have disastrous consequences. Ukraine's experience between 1991 and 1994 demonstrates this clearly. Large deficits and high inflation, inadequate privatization and liberalization, and continued high taxes and overregulation would certainly not help generate confidence in the economy or encourage investment. High public sector consumption and failure to control energy use would impede the necessary increase in savings. Under this scenario savings and investment rates would drop to around 2 percent and 7 percent, respectively. Thus, output, consumption, and living standards would be stagnant.  13 49. In the absence of reforms, Ukraine's creditworthiness would be precarious. The current account deficit would remain around 5 percent of GDP. The stock of debt would exceed 40 percent of GDP by 2000. The debt service ratio could be as high as 25 percent by 2000. Such developments would clearly be economically unsustainable. 50. This scenario would also be socially and politically unsustainable. As output stagnated so would employment. Poverty would increase, and the Government would have fewer and fewer resources to provide protection for the needy. It would also have insufficient resources for environmental protection. Nuclear safety would deteriorate even further. In this way economic instability would lead to social and political instability. Such a scenario would not continue for very long-the social and political pressures for reform would be too strong. Table 2: Summary Economic Indicators, 1994-2001 Derailment of Reforms (percentages) 1994 1995 1996 1997-2000 2001 Growth of GDP -21.7 -11.8 -5.0 -1.1 1.0 Domestic Investment/GDP 8.8 9.3 6.9 6.5 7.0 National Savings/GDP 2.7 4.8 2.2 1.7 1.7 Fiscal Balance/GDP -8.2 -5.2 -3.3 -4.3 -3.1 Real Export Growth 3.0 1.5 1.7 2.1 Real Import Growth -2.2 0.2 0.8 2.1 Current Account Balance/GDP -6.1 -4.4 -4.7 -4.9 -5.3 External Debt/GDP 31.5 23.4 28.8 37.4 43.1 Debt Service Ratio 2.0 8.1 7.5 17.4 25.1 D. A PROACTIVE BANK GROUP STRATEGY 51. In line with the uncertainties outlined above, the World Bank's strategy in Ukraine calls for a graduated expansion of the lending program in line with the intensity of the reform effort. This approach will allow the Bank to respond promptly in support of broader and deeper reforms while avoiding burdening Ukraine with debt that would not contribute to economic recovery and improved creditworthiness. The Bank will continue to provide Ukraine with a high level of nonlending services and engage the Government and civil society in an intensive policy dialogue under all scenarios. Bank Involvement Will Be Based on the Pace of Reforms 52. The Bank's three-year lending program will range between US$200 million and US$3,100 million. In the unlikely case of a complete derailment of reforms, including the failure of IMF-supported stabilization, Bank lending would be limited to a low case of three or four projects with a volume not exceeding US$200 million. If the stabilization program remains on track, as evidenced by continued IMF support to Ukraine, the Bank will provide a base case of nonadjustment lending, not exceeding US$580 million. Strong reforms in the areas of ownership change and liberalization are needed to move to a high case of adjustment and project lending, ranging from US$1,400 to US$3,100 (see lending program in Attachment Table 2). 53. Decisive action in liberalization, privatization, and land reform would trigger the high case (see specific triggers in Attachment Table 3). In addition to the base program, Ukraine would have access to an ownership and liberalization program of more than US$800 million. This explains the jump in  14 Figure 3 (from US$580 million to US$1400 million) when policies that trigger the high case are introduced. The ownership and liberalization program includes two adjustment loans, the Enterprise Development Adjustment Loan (EDAL) and the Agriculture Sector Adjustment Loan (AGSECAL), two projects in support of export development and the extension of agriculture services, and a guarantee for the import of agriculture inputs. Once it achieves the high case Ukraine would also have access to an expanded program providing an additional US$1700 million, provided additional systemic and project reforms are put in place. Thus, fast deep reforms would allow lending of up to US$3100 million. The expanded program would include three adjustment loans in support of public, financial and coal sector reforms totaling US$900 million. These loans would be complemented by projects supporting the development of the wholesale electricity market, the development of financial institutions, the restructuring of the coal industry, and the rehabilitation of thermal power plants. Figure 3 Ukraine: The Relationship Between Lending and Policy Reform, FY 96-98 (in million USS) 3100 Extended 7 Program 1400 Ownership&1: Lbralization Program 580 Base Program_ Critical triggers [eeper and broader Intensit ofrefom to move to the policy reforms high case 54. The choice and sequencing of lending instruments (see Figure 4) reflect the priority the Government and Bank place on rapid resumption of growth. The ownership and liberalization program is mainly concerned with getting the economy moving again. Output growth and the expansion of job opportunities are important for political economy reasons. Reformers need to demonstrate the benefits of their approaches in order to continue receiving political support. Growth is also important for poverty alleviation. The poverty assessment has shown that most of the poor in Ukraine are clustered around the poverty line (para 27). This means that an expansion in output, jobs, and consumption could, in the short-run, have a huge impact on poverty. Once the basis for resumed growth is in place, reforms under the expanded program-especially those covered by the public sector reform and coal restructuring loans-would focus on restructuring the pension system, strengthening the safety net, and providing protection for displaced workers. The Bank will also continue its dialogue on health and education, trying to help build a consensus on reforms in these key sectors. 55. Ukraine's weak project implementation capacity sheds serious doubts on the possibility of achieving the maximum lending program described here. Experience so far with portfolio implementation in Ukraine has been difficult (paras. 71-72). This problem could severely limit Bank lending. Ukraine's weak absorptive capacity, as much as political uncertainties and the ability to implement reforms, sheds doubts on the likelihood of reaching the maximum lending scenario, consisting of 20 loans totaling US$3,100 million. Without a huge improvement in implementation  15 capacity lending would probably be only near the low end of the high case (US$1,400). The Government is aware of the importance of this issue, and is taking corrective action. Moreover, a significant part of the Bank's nonlending services is geared to dealing with implementation issues (paras. 73-74). 56. The Bank Group will provide Ukraine with a high level of nonlending services under all scenarios. The Bank Group will continue to engage the authorities and Ukraine's civil society in an intensive dialogue. In the high case the objective would be to support ongoing reforms. In the low and base cases it would be to help build consensus on reforms, and lay the groundwork for the time when policies change. The Economic Development Institute (EDI) will continue to play an important role (para 77), efforts at public economic education by Headquarters and Resident Mission staff (para. 76 ) will be intensified, and local initiatives of the International Finance Corporation (IFC) will be pursued (para. 59). A significant economic and sector work (ESW) program would be maintained to sustain the dialogue on all elements of the reforn agenda. Figure 4: Sequence of Lending Program and Linkages -,-- ,,;,,>1ugz-gu. OPEIFATIONAL, Board- Bass Ownership & Liberalization Expanded Program P6RAxM- Approved program Program ,,progr m m_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 5YI5TS8jilC ;-Rehab '- - Insitutlon Building Legal Reform |Enterprise Davto _estructuring waT- IACSECAL _ _ _ _ ~~~~~~~FSECAL __ > ~~~~~~~~~~~~~COALSECAL__ -ismeds Thermal rehab ,Hydro Housing - Coal pilot Education Gas dictribution District heating c , ' Urban transport Municipal water Environment Sea Launch The Bank Group's Strategy Supports the Four Elements of the Reform Agenda 57. The lending and nonlending programs outlined above will support the implementation of all four elements of the agenda described in section B, with actions in the areas of private sector development, public sector restructuring, social protection and poverty alleviation, and environmental protection (see Attachment Table 1). 58. Promoting the private sector is a key objective. Privatization of enterprises and of agricultural land, and the establishment of a market-based system of incentives will be supported by the Enterprise Development Adjustment Loan and the Agriculture Sector Adjustment Loan. In addition, an Agriculture Services Project is being prepared to support privatization and develop a land market. The  16 important agricultural reforms supported by the latter two operations are very timely, as they would allow Ukraine to maximize the benefits from rising world grain prices. In turn, rising export prices and rural incomes would facilitate agricultural adjustment. It is critical for Ukraine to seize this opportunity now, because the rise in grain prices may be temporary. 59. The IFC is particularly active in privatization efforts. It has helped design and implement privatization programs and privatize 3,000 small enterprises in 15 Ukrainian cities. It is also supporting the mass privatization program, and has developed a program that helps regional privatization agencies prepare enterprises for privatization, including the design of a regional public relations campaign to strengthen demand for shares of privatized enterprises. The IFC has also initiated a program of post-privatization support aimed at training owners of newly privatized small-scale enterprises. 60. A recent Bank financial sector review provided the analytical underpinnings for the preparation of a Financial Sector Adjustment Loan (FSAL). At the same time a Financial Institutions Development Loan (FIDL) will support bank restructuring and extend credit to the private sector through qualified banks; an Export Development Loan will help increase exporters' access to financing; and a Legal Reform Loan will help strengthen the legal environment for banking and for private sector development. The IFC has made one investment in Ukraine, a US$2 million dollar equity stake in the Ukraine Fund; several other investment projects are being considered. The IFC expects a rapid increase in its activities once the mass privatization program injects enterprise assets into the market. 61. The World Bank Group is also helping mobilize foreign financing for Ukraine's private sector. Both the IBRD and the IFC are sharing information with foreign firms and are active in investors' conferences. For example, the Bank will help prepare an investment promotion conference to help match investment opportunities in Ukraine with foreign investors. Provision of executive training for local enterprise managers and the establishment of an investors' service center are also being considered. The IBRD is preparing a pre-export guarantee facility whose aim is to attract foreign private financing for pre-export transactions in agriculture by mitigating political risk; and may provide guarantees to the foreign partners in the Sea Launch Project, a joint venture between Ukraine, Russia and international companies for the production of rocket launchers. Ukraine has also joined the Multilateral Investment Guarantee Agency (MIGA). 62. A significant portion of the Bank's economic and sector work aims at identifying problems facing the private sector and proposing solutions. In addition to the financial sector review, recent work in this area included a study of agriculture and trade policies. Ongoing and future work include an enterprise sector review, a trade policy review, and an analysis of tax policies. 63. The Bank is also active in public sector restructuring. The Institution Building Loan (IBL), already in place, aims at developing a number of key public institutions. It is supporting the introduction of a payments system at the National Bank, as well as strengthening the Tax Inspectorate, Ministry of Economy, the State Property Fund (responsible for mass privatization), the Anti-Monopoly Committee, State Customs Committee, Ministry of Statistics, and it supports the Government's capacity to manage external resources. Two ongoing pieces of economic and sector work, a study of debt management and a public expenditure review, will also have important implications for institution building. The public expenditure review will also provide the analytical underpinnings for a Public Sector Reform Loan that will support measures aimed at reducing government spending, restructuring expenditure patterns, and improving service efficiency.  17 64. The Bank's program also aims to develop local institutions and encourage efficient decentralization of activities that are best performed at the local level. An important portion of the Public Expenditure Review covers issues of fiscal federalism and intergovemmental fiscal relations. The Urban Transport, Housing, and Municipal Water Projects are being prepared with local authorities. In addition to financing important local infrastructure, all three projects have components that aim at improving the system of local government financing and enhancing local autonomy. 65. Supporting energy sector reforms, and encouraging private involvement, is a central part of the Bank's strategy. The Bank is preparing projects in the power (Thermal Rehabilitation and Electricity Market Development), gas (Gas Distribution), district heating, and coal subsectors, including a Coal Sector Adjustment Loan. These projects, which support the Government's strategy that aims at creating a market environment conducive for private participation (para. 24), were identified by a power sector reform report and a coal sector review; and an intensive policy dialogue that sought to develop a coherent energy sector strategy. At the Govemment's request, the Bank, working with the European Bank for Reconstruction and Development (EBRD), the International Atomic Energy Agency (IAEA), and US government agencies, agreed to review the problems and prospects of the energy sector. This process culminated in an energy strategy conference held in Kiev in June 1993. It was then decided that the Bank would focus on power generation, gas transmission, and gas distribution, since the Bank's contribution to policy development and financing of priority investments could make a significant difference in these subsectors. 66. The Bank's work in the energy sector supports Government and G-7 efforts to enhance nuclear safety and achieve early closure of the Chernobyl nuclear power plant. The Bank has participated in meetings of the G-7's Nuclear Safety Working Group, and co-chaired the panel on conventional power in the Ukraine/G-7 joint working group in 1994-95, where it helped develop the strategic basis for the memorandum of understanding agreed on between Ukraine and the G- 7. It also worked closely with the EBRD on the least cost investment plan for the power sector. The Bank will continue its advisory role in G-7 and Government discussions on power sector reforms. The projects it is financing in conventional power, gas, and coal will help to expand efficient supply of energy. Other donors will focus on nuclear issues, where they have a comparative advantage. 67. The Bank's program stresses the importance of the social sectors. The completed poverty assessment identifies the truly needy, describes their plight, and recommends policies to strengthen the social safety net. Many of the Bank's projects, especially the Coal Pilot and Coal Restructuring, have specific components to deal with the social costs of the transition. Also the Public Sector Reform Loan is expected to support a reform of the pension system. The Bank has analyzed Ukraine's health system and started preparing a project geared to the sector's key priorities-public health, matemal and child health care, vaccine quality control, and the import of badly needed pharmaceuticals. Unfortunately, there was not sufficient local ownership of the project, and it had to be abandoned. In the education sector the Bank has prepared an Education Development Project that aims at updating and improving school curricula and enhancing the ability of graduates to function effectively in a market economy, broadening the base of vocational school programs, modemizing the higher education system, and enhancing the Govemment's ability to finance and manage a modem education system. The Government's commitment to this project has been unsteady, however, and some officials do not believe that Ukraine should use foreign loans for social sector projects. The Bank will continue its analytical work on the social sectors, and will maintain its policy dialogue aimed at convincing Govemment of the need for reforms, and of the benefits of borrowing to finance social projects.  18 68. The Bank shares the Government's concern for the environment. The Bank report titled "Suggested Priorities for Environmental Protection and Natural Resource Management" played a substantial role in focusing attention in Ukraine on the environment and in identifying priorities and a work program for the next three to four years. The Bank is preparing an environment project that would support air and water pollution abatement, waste minimization, water and coastal management, and biodiversity conservation in the southem regions of Ukraine. Moreover, environmental considerations and components are being incorporated in other sectoral projects: various energy operations (particularly the upcoming coal restructuring project), municipal operations (through energy conservation investments in housing and district heating), and even in the Financial Institutions Development Loan (ensuring environmental screening of subprojects). The upcoming water and wastewater project in Lviv and Odessa will have a strong positive environmental impact both locally and on transboundary waters (the Vistula watershed and the Black Sea, respectively). 69. Several smaller environmental initiatives are being supported by the Bank Group. On the institutional side, a pilot Local Environmental Management Program in Donetsk oblast, funded by the Institutional Development Fund (IDF), is under way. It seeks to introduce modem regulatory approaches, to offer related training for air and water quality and waste management, and to support environmental education, public awareness activities, and participatory approaches in regulatory programs. A second IDF proposal is being prepared to assist Ukraine in rationalizing its system of standards (currently the Soviet system is still in place) as it moves toward closer cooperation with the European Union. Two Global Environmental Facility (GEF) biodiversity conservation projects are being set up in the Carpathian mountains and the Danube Delta that will support the training and technical cooperation needed to introduce new approaches to conservation management, such as community outreach in multiple-use areas. Ukraine is also seeking GEF support for chlorofluorocarbons and ozone- depleting substances phase-out in order to meet its obligations under the Montreal Protocol. Efforts Are Being Made to Improve Portfolio Implementation 70. Day-to-day operations in Ukraine are made difficult by weak coordination within the Government, partly reflecting the institutional weaknesses of a young state. The Ministry of Finance, which in most countries is responsible for coordinating economic policy, does not have the necessary capacity for coordination. It mainly acts as a ministry of financial accounting without any real budgeting or control authority. The Ministry of Economy also does not have the instruments to coordinate the work of sector ministries. Some coordination problems are the result of political tensions. The sector ministers have their own power bases within each sector, and only respond to directives from the president. These circumstances make it difficult for a central ministry to coordinate economic policy, even if it had the institutional capacity to do so. 71. Many portfolio implementation problems are caused by weak coordination. The health project prepared by the Bank and supported by reformers in central ministries had to be abandoned because of opposition from the Ministry of Health. Appraisal of the Bank's education project has been delayed. The project was initiated and prepared by leaders of the Ukrainian education system, who saw it as a first step in adapting to a market-driven economy. Support for the project at the sectoral level has been enthusiastic, but the Ministry of Finance was against borrowing for the social sectors. The loan agreement for the Hydropower Rehabilitation and System Control Project, approved by the Bank's Board in April 1995, was signed in September 1995, and as of May 1996 is still not effective.  19 Experience with the Institution Building Loan indicates that implementation problems continue after effectiveness, and could cause disbursements to be behind schedule. 72. Important steps are being taken to resolve implementation problems. An agreement was reached-during Mr. Wolfensohn's visit to Ukraine-that a high-level review of the program be jointly carried out every six months. A monitoring matrix has been jointly developed and is being used regularly. The next review is scheduled for June 11-12 in Kiev. The Bank will use those reviews to highlight problems with project processing and implementation, and to agree with Government on corrective measures. The reviews will be complemented by extensive operational support on legal, financial, procurement, disbursement, and auditing issues, to ensure that the processing and implementation of projects is more efficiently handled. 73. The Bank's limited experience in Ukraine could also explain some of the implementation problems. The experience with the Bank's initial projects has identified several factors affecting the performance of the portfolio and three types of corrective action. First, every effort will be made by Bank staff to ensure full Government ownership of projects, and to obtain an early commitment from the Government-both sectoral and finance or economy ministries-and Parliament to the project under preparation, in order to avoid major delays in final approval stages. Second, task managers will give early attention to issues like the establishment of project implementation units, technical cooperation for these units, and procurement procedures. Finally, supervision will be increased and intensified, with greater responsibility given to the Resident Mission. Aid Coordination and Cofinancing Are a Priority 74. The Bank and other preferred creditors, mostly the IMF and the EBRD, will likely provide the largest share of financial support to Ukraine. In the event Ukraine moves full speed ahead with the reforms, strong support from multilateral financial institutions would be reflected in high exposure indicators for preferred creditors (see Annex C4). To improve burden sharing and ensure that sufficient resources are mobilized in support of Ukraine's program, the Bank will continue to play an active role in aid coordination and cofinancing. An initial Consultative Group Meeting for Ukraine chaired by the Bank was convened in March 1995. Coordination with other donors at the sectoral level -specially in power, privatization and the environment-has been close and frequent. Cofinancing has been sought with both Canada and the Export-Import Bank of Japan for economic cooperation in filling the balance of payments financing gap. Cofinancing of investment projects has been arranged with the EBRD, the European Union, the United States, the United Kingdom, the Netherlands, and Switzerland. Total cofinancing mobilized to date exceeds US$200 million. The Resident Mission Plays an Important Role 75. The Resident Mission's activities are an integral part of the Bank's program. Until recently the mission played an active, supportive role in the preparation of projects and the monitoring of their implementation. Increasingly, however, the mission is playing a key role in the design and implementation of some activities, and has become increasingly involved in supervision as projects get to that stage. As the portfolio expands and more activities reach the implementation stage, the mission's monitoring and supervision roles will become more important. The mission has also played an important role in the policy dialogue with the Government. This stance on economic reform has been backstopped by a public education program implemented over the past three years. This outreach program has contributed to broadening the understanding and support of economic reform issues. Through these  20 participatory programs the mission has reached out to Ukraine's civil society, enlarging the circle of the Bank's partners in the country. The Economic Development Institute is Very Active in Ukraine 76. EDI's training and education activities are a key component of the Bank's overall effort to build consensus on reforms in Ukraine. At the time of independence there was a large gap between the challenges posed by economic and institutional reform and the Government's ability to meet those challenges. EDI responded rapidly and held its first program in Ukraine in October 1992. EDI's presence grew quickly thereafter, providing a broad range of training programs to government officials, public and private managers, parliamentarians, journalists, non-government organizations, local communities and other opinion makers. So far more than 1,200 people have been directly trained by EDI and many more will be reached as those people train others. EDI's training has focused on market economics, project analysis and management, social policy, management in both the public and private sectors, finance and banking, and enterprise restructuring and privatization. Risks: Political Support for Reforms and the International Environment 77. Two risks need to be considered. The greatest risk is that reforms will not be implemented. Several political and social factors could derail the reform program (para. 37). The situation is made more complicated by new and weak institutions and a weak capacity for policy formulation and implementation. Hence, even if a political consensus on the full reform agenda is maintained, the disconnect between senior officials and lower-level implementers could cause failure. If reforms do not occur, the Bank will be in the low or base case and lending will be limited (para. 52). The second risk is that growth will not materialize despite good policies. This could be caused by a negative external environment (paras. 45-47). The Bank's lending program would continue to be in the high case if that occurs, and would continue to emphasize mobilizing additional support. Ukraine would remain creditworthy with lower rates of growth and export expansion than those assumed under the high case scenario. E. AGENDA FOR BOARD CONSIDERATION 78. Executive Directors may wish to consider the following questions: * Do Directors agree with the agenda for reform outlined in the Country Assistance Strategy? * Do Directors agree with the lending volumes and their links to the implementation of reforms? * Do Directors agree with the sectoral priorities outlined in the Country Assistance Strategy? James D. Wolfensohn President Washington, D.C. June 3, 1996 Attachmocta  Attachient Table 1 UKRAINE Page 1 of 3 Framework for the Country Assistance Strategy COUNTRY MONITORABLE ACTIONS AND PERFORMANCE BANK SERVICES TASKS OBJECTIVES INDICATORS Macrocconomic Stability Rcduce inflation to singic digit levels. Adjusimient Lcnding Enterprise Devclopmciit Adjustmcnl l.oan (FY96) Agriculturc Scctor Adjuscliiicii Loan (FY97) Increasc public saving and lowcr thc fiscal dcficit. Financial Scctor AdJustmient Lol.il (I:Y )) P'ublic Scctor Rel'orii l.mait (FY97) Maintain cxtcrnal equilibrium and crcditworthincss. Non-lIudiiig services I'ublic Expcndilurc lRevicw (FY96) Tax Policy Study (FY97) Entcrprise Adjustmcnt Study (FY97) Public lnvcsimcnt Rvicvw (FY97) Country Economic Memorandtiuim (FY98) Promotc Private Scctor Acccieraic shift to private owncrship. Adjustment Lending Enterprisc Developmncit Adjustment L .oani (FY96) Dcvclopmcnt Agriculture Scclor AdJustincnt Loan (FY97) Establisih systcm of enforceable property and contract rights. Finanicial Scclor Adjustmient lo.an (FY98) Continuc tradc and price liberalization. Invcstimcit Ag l'rc-export Guarantee (FY97) Lending/Guarantcc Ag scrvices (FY98) Enhancc access to compctitively-priccd investmcnt and working capital Finanicial Institulionis Development loan (F Y97) financing. Commcrcial Sca Launch Guarantce lroqject (FY96) Export Development Loan (FY97) Mobilizc forcign financing for privatc sector. Lcgal Rcform Loan (FY97) I Housinig (FY96) Non-leniding serviccs TIax Policy Stud(y (FY97) Enterprisc Adjustmeint Study (FY97) Study or Privatc Invcsitent in Flnergy (FY97) P'rivate Sector Assesnicint (FY98) Agriculture Scclor Notc (FY98) IFC technical cooperation Supcrvision Agricuilitire Seds l1roicci  Page 2 of 3 C01.... ..NI.TOR)IABLE J ACTIS AN EROMAC AN ERRE TASLK OB8JECTIES: NDICATORS Restructuring of Public Strengthen economic management institutions. Adjustment Lending Public Sector Reform Loan (FY97) Sector Coal SECAL (FY98) Rehabilitate infrastructure needed to crowd in private investment. Investment Lending Electricity Market Development Project (FY96) Attain cost-recovery pricing in public sector. Coal Pilot (FY96) Urban Transport Loan (FY97) Encourage efficient decentralization. Thermal Rehab (FY97) Gas Distribution Loan (FY98) Housing (FY%) Municipal Water (FY98) District Heating (FY98) 98) Non-lending Services Public Expenditure Review (FY96) Transport Sector Review (FY97) Public Investment Review (FY97) Gas Strategy Paper (FY98) Supervision Institution Building Loan Hydropower I Enhancing Social Reorient social transfers to be effective, affordable and incentive-neutral. Adjustment lending Public Sector Reform Loan (FY97) Protection Coal SECAL (FY98) Stimulate creation of productive employment. Investment Lending Education Development Loan (FY96) Improve provision of health and education services. Coal Pilot (FY96) Coal Restructuring I (FY97) Non-lending services Public Expenditure Review (FY96) Poverty Assessment (FY96)  Page 3 of 3 COUNTRY MONITORABLE ACTIONS AND PERFORMANCE BANK SERVICES TASKS OBJECTIVES INDICATORS Improve the Quality of Improve pollution abatement, management of waste, water and coasts, and Adjustment lending Coal SECAL (FY98) Environment biodiversity conservation. Incorporate environmental considerations more effectively in project Investment Lending Environment Project (FY98) analysis. Coal Pilot (FY96) Urban transport (FY97) Introduce modem environmental regulations. Thermal Rehab (FY97) Coal Restructuring I (FY97) Enhance public awareness of and participation in environmental issues. Gas Distribution (FY98) Non-lending Services IDF grant for Environmcntal Stanidards (FY97)   Attachment Table 2 Page 1 of 1 Ukraine - FY 96-98 Lending Program Programs Fiscal Year Amounts (millions US$) A. Base Program Legal reform 1997 30 Education 1997 38 Gas distribution 1998 100 District heating 1998 150 Urban transport 1996 75 Municipal water 1998 40 Environment 1998 50 Sea Launch (guarantee) 1996 100 Total 583 B. Ownership & Liberalization Program BHI. Adjustment Lending Enterprise development 1996 310 Agriculture sector development 1997 250 B2. Projects Export development 1997 50 Agriculture services 1998 50 Agriculture pre-export (guarantee) 1997 170 Total 830 C. Expanded Program Cl. Adjustment Lending Public sector reform 1997 400 Financial sector adjustment 1998 300 Coal sector adjustment 1997 200 C2. Projects Electricity market 1997 300 Financial institutions 1998 200 Coal restructuring 1997 80 Thermal rehabilitation 1997 250 Total 1730 Grand Total 3143 Average lending per yer 1048 Total number of projects 20  Attachment Table 3 Page I of I Specific Triggers for the Liberalization and Ownership Change Agriculture Enterprises Liberalization Cease the setting of indicative prices for export contracts for General abolition of minimum prices on exports. Further products whose export is not subject to contingent liberalization of the trade and price regime, as evidenced intergovernmental agreements with Ukraine. by (a) rescinding the Special Export Regime, (b) abolishing the remaining export registration requirements, Limit total annual state purchases of agricultural products to (c)abolishing domestic price controls on 16 artificial the equivalent of $US 550 million and ensure that all state monopolies, and (d) eliminating state and municipal price agricultural procurements in 1996 are executed on a inspection units. competitive basis. Ownership Change privatization methodology for agro-industrial Implementation of the mass privatization program, as Change enterprises to: (a) reduce the subscription period, (b) ensure no evidenced by completion of the sale to private entities of reversal of privatization transactions previously completed, at least 2,000 state-owned enterprises, of which 30% must and (c) prevent collective agricultural enterprises from gaining be agro-industrial enterprises. Subsequent tranches would excessive preferential access to shares. be conditioned on further, comparable progress in privatization. Amend the Land Code to (a) allow withdrawal of land and other property from collective and state farm enterprises No reversal in the favorable legal, institutional and without approval by either farm management or the farm methodological framework governing small scale members' council; and (b) abolish the moratorium on sale of privatization. land or land shares (currently six years). Preparation and, enactment of a package of legislation Accelerate the privatization of agricultural land by issuing governing the operation of the capital markets. land share certificates to all entitled beneficiaries and complete the process of exchanging land shares for physically identified land plots on a pilot 100 former state and collective farms. Execute demonopolization plans to create independent enterprises out of 100 large state-owned enterprises of the agro-industrial complex, including five large state-owned monopolists in the processing of agricultural products and in material-technical (input) supply.  Annex Al Ukraine - Selected Indicators of Bank Portfolio Performance and Management IDdicator FY93 FY94 FY95 FY96 Planned Portfolio Performance Number of projects under implementation 1.00 1.00 4.00 7.00 Average implementation period (years)' 0.06 1.07 0.74 1.75 Percent of problem projects rated U or HUb (for past years, rated 3 or 4) Development objectives' 0.00 0.00 0.00 0.00 Implementation progress (or overall S S S S status for past years)d Canceled during FY in USMm 0.00 0.00 0.00 0.00 Disbursement ratio (%)' 0.00 2.89 44.32 Disbursement lag (%)f 0.00 84.71 2.70 4.89 Memorandum item: % completed projects N/A N/A N/A N/A rated unsatisfactory by OED5 Portfolio Managenment Supervision resources (total US$ thousands) 13.13 237.50 307.78 374.70 Average supervision (US$ thousands/project) 13.13 237.50 76.95 53.50 Supervision resources by location (in %) Percent headquarters 64.74 48.81 67.05 77.92 Percent field 35.26 51.19 32.95 22.08 Supervision resources by rating category (USS thousands/project) Projects rated HS or S 13.13 243.27 74.86 23.63 Projects rated U or HU 0.00 0.00 83.20 29.38 Memorandum item: date of last/next CPPR N/A N/A N/A N/A a. Average age of projects in the Bank's country portfolio. b. Rating scale: "HS" denotes "Highly Satisfactory", "S" denotes "Satisfactory", "U" denotes "Unsatisfactory", and "HU' denotes "Highly Unsatisfactory". c. Extent to which the project will meet its development objectives (see OD 13.05, Annex D2, Preparation of Implementation Summary [Form 590]). d. Assessment of overall performance of the project based on the ratings given to individual aspects of project implementation (e.g., management, availability of funds, compliance with legal covenants) and to development objectives (see OD 13.05, Annex D2, Preparation of lnrplementation Summary [Form 5901). The overall status is not given a better rating than that given to project development objectives. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year: investment projects only. f. For all projects comprising the Bank's country portfolio, the percentage difference between actual cumulative disbursements and the cumulative disbursement estimates as given in the "Original SAR/PR Forecast" or, if the loan amounts have been modified, in the "Revised Forecast." The country portfolio disbursement lag is effectively the weighted average of disbursement lags for projects comprising the Bank's country portfolio, where the weights used are the respective project shares in the total cumulative disbursement estimates. g. OED data, available in the statistical appendix to the most recent ARPP reports. Note: Disbursement data is updated at the end of the first week of the month. Supervision resources include Salaries, Benefits, and Travel for "BB' source of funds but excludes FAO staff and PCR task costs.   Annex A2 Page I of 2 Ukraine - Bank Group Fact Sheet FY 1993-1999 IBRD/IDA Lending Program, FY 1993-1999 Pasi Current Planned' Ca;egorv FY93 FY94 FY95 FY96 FY97 FY98 FY99 Commitments (USSm) 27.0 0.0 646.0 630.5 1342.6 1100.0 1300.0 Sector (%)b Agriculture 0.0 0.0 5.0 0.0 31.3 S.1 3.8 Education 0.0 0 0 0.0 0 0 2.8 0.0 0.0 Employment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Energy 0.0 0.0 0.0 49.8 0.0 33.5 15.4 Environment 0.0 0.0 0.0 0.0 0.0 4.5 0.0 Finance 0.0 0.0 0.0 0.0 0.0 45.4 0.0 Non-sector 0.0 0.0 77.4 0.0 35.7 0.0 0.0 Other Finance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Population 0.0 0.0 0.0 0.0 0.0 0.0 0 Powver 0.0 0.0 17.6 0.0 24.6 0.0 15.4 Public Sector Manage 100.0 0.0 0.0 47.6 0.0 0.0 0.0 Social Sector 0.0 0.0 0.0 0.0 0.0 0.0 30.8 Transportation 0.0 0.0 0.0 0.0 5.6 0.9 26.9 Urban 0.0 0.0 0.0 2.6 0.0 7.6 7.7 TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Lending instrument (%) Adjustment loans' 0.0 0.0 77.4 47.5 48.4 37.2 30.7 Specific investment loans and others 100.0 0.0 22.6 52.5 51.6 62.8 69.3 TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Disbursements (USSm) Adjustment loans' 0.0 0.0 364.2 135.1 0.0 0.0 0.0 Specific investment loansand others 0.0 0.8 2.1 0.5 37.2 33.3 31.2 Repayments (USSm) Interest (USSm) 0.0 0.0 0.1 24.0 0.0 0.0 0.0 a. Ranges that reflect the base-case (i.e., most likely) scenario. For IDA countries, planned commitments are not presented by FY but as a three-year-total range; the figures are shown in brackets. A footnote indicates if the pattern of IDA lending has unusual characteristics (e.g., a high degree of frontloading, backloading, or lumpiness). For blend countries, planned IBRD and IDA commitments are presented for each year as a combined total. b. For future lending, rounded to nearest 0 or 5%. To convey the thrust of country strategy more clearly, staff may aggregate sectors. Structural adjustment loans, sector adjustment loans, and debt service reduction loans. 4ote: Disbursement data is updated at the end of the first week of the month.  Annex A2 Page 2 of 2 Ukraine - IFC and MIGA Program, FY93-95 Past Category FY93 FY94 FY95 IFC approvals (USSm) 0.0 2.0 0.0 Sector (%) Financial Services 100.0 TOTAL 100.0 0.0 0.0 Investment instrument (%) Loans 0.0 0.0 0.0 Equity 0.0 100.0 0.0 Quasi-equity' 0.0 0.0 0.0 Other 0.0 0.0 0.0 TOTAL 0.0 100.0 0.0 MIGA guarantees (USSm) 0.0 0.0 MIGA commitments (USSm) 0.0 0.0 ' Includes quasi-equity types of both loan and equity instruments.  Annex A' Ukraine - Summary of Economic and Sector Work USS thousands Actuals to FY95 FY96 FY97 FY98 Project CEM 190.4 CAS 47.7 86.2 63.5 Trade Policy 38.1 Public Expenditure Review 4.5 170.0 Debt Management 27.0 Policy Notes 52.3 Food & Agriculture Sector Review 409.8 Agriculture Sector Note 63.5 Enterprise Reform 2.4 Enterprise Adjustment Study 190.4 Financial Sector 280.8 17.3 Financial Sector Technical Assistance 31.7 31.7 Enterprise Sector 141.7 7.5 Enterprise Sector Technical Assistance 1.2 Private Sector Assessment 126.9 Energy Sector Review 247.2 Energy Sector Update 42.2 29.3 Energy Policy Note 63.5 Gas Strategy Paper 63.5 Water 148.1 4.4 Coal Sector 86.3 185.0 Social Sector Review 41.2 Education Policy Note 20.2 9.2 Poverty Assessment 77.0 92.3 Land Reform 160.3 Tax Policies 126.9 Accounting/Auditing 47.6 Procurement Assessment 47.6 Public Investrnent Review 190.4 Transport Sector Review 129.2 Odessa Initiative 29.0 Total Economic and Sector Work 1747.5 710.7 698.1 668.7   Annex A4 Ukraine Page 1 of 2 Most Same region/Yncome grou Next Latest single Year recent Europe Lower- higher Unit of estimate C central middle- Income Indicator measure 1970-75 1980-85 1988-93 Asia income group Priority Poverty Indicators POVERTY Upper poverty line local curr .. Headcount index % of pop. Lower poverty line local curr. Headcount index % of pop. .. .. GNP per capita USS .. 2,210 2,450 1,590 4,350 SHORT TERM INCOME INDICATORS Unskilled urban wages local curr. .. .. .. Unskilled rural wages " Rural terms of trade Consumer price index 1987=100 .. .. . Lower income " .. .. .. Food' .. 91 101 Urban Rural SOCIAL IN'DICATORS Public expenditure on basic social services % of GDP .. .. 8.0 Gross enrollment ratios Primary % school age pop. .. .. .. .. 104 105 Male Female Mortality Infant mortality perthou. live births 22.0 20.0 16.0 24.8 39.0 35.8 Under 5 mortality .. .. 26.0 36.4 61.5 42.6 Immunization Measles % age group .. .. .. .. 77.6 82.0 DPT 8.. .. .. .. 2.2 74.2 Child malnutrition (under-5) Life expectancy Total years 70 69 69 69 67 69 Female advantage 8.7 9.3 9.9 8.8 5.9 5.9 Total fertility rate births per woman 2.0 2.0 1.6 2.1 2.9 2.9 Maternal mnortality rate per 100,000 live birth .. 45 33 Supplementary Poverty Indicators Expenditures on social security % of total gov't exp. .. .. .. Social security coverage % econ. active pop. .. Access to safe water: total % of pop. . 100.0 .. .. .. 86.7 Urban . 100.0 .. .. .. 93.9 Rural 100.0 .. .. .. 66.7 Access to health care 100.0 100.0 Population growth rate GNP per capita growth rate Development diamond b 6+ (annual average, percent) (annual average, percent) T 1t 5Life expectancy O GNP 9 X Gross 21. 0 I e per primary I \ capita enrollment o I I | r l l .. s -5 -2 - 10 | Access to safe water 1970-75 1980-85 1988-93 1970-75 1980-85 1988.93 Ukraine _ Uknine - Lower-middle-income - Lower-middle-income a. See the technical notes, p.387. b. The development diamond, based on four key indicators, shows the avemge level of developnent in the country compared with its income group. See the introduction.  Amnex A4 Ukraine ~~~~~~~~~Page 2 ofIL 2 Al ost Some regionlIncome grou Nvext Latest single year recent Europe Lower- higher Unit of estimate & Central middle- income Indicator measure 1970- 75 1980-85 1988-93 Asia income group Resources and Expenditures HUMAN RESOURCES Population (mre=1993) thousands 49,016 50,914 51,551 494,619 1,096,665 500,507 Age dependency ratio ratio 0.50 0.49 0.51 0.57 0.69 0.62 Urban % of pop. 58.3 64.7 69.2 64.8 54.7 71.2 Population growth rate annual % 0.7 0.4 0.0 0.6 1.6 1.7 Urban 2.0 1.3 0.9 1.5 2.9 1.8 Labor force (15-64) thousands .. 25,587 24,028 237,897 459,196 190,136 Agriculture % of labor force ..21 21 Industry ..39 39 Female ....47" 31' 29" Females per 100 males Urban number . .. Rural NATURAL RESOURCES Area thou. sq. km 603.70 603.70 603.70 24,320.56 40,682.67 21,848.14 Density pop. per sq. km 81.19 84.34 85.36 20.20 26.52 22.51 Agricultural land % of land area 73.44 73.40 72.37 .. 39.61 41.26 Change in agricultural land annual % .. 0.19 -0.09 -1.28 -0.13 0.08 Agricultural land under irrigation %3.49 5.78 6.21 7.15 12.66 8.84 Forests and woodland thou. sq. km .. 89.99 92.39 801.84 5,953.78 8,044.95 Deforestation (net) annual % ... -0.26 INCOMvE Household income Share of top 20% of households % of income . .. Share of bottom 40% of households . Share of bottom 20% of households . EXPENDITURE Food oOf GDP . .. Staples Meat, fish, milk, cheese, eggs Cereal imports thou, metric tonnes ... 1,500 34,452 66,281 48,947 Food aid in cereals ... 197 4,392 5,477 544 Food production per capita 1987 100 . ....101 102 Fertilizer consumption kg/ha ... 69.1 41.7 48.0 67.8 Share of agriculture in GDP % of GDP .. 19.3 34.7 13.5 15.7 8.0 Housing % of GDP ...4.7 6.0 Average household size per-sons per household ...3.2 Urban Fixed investment: housing % of GDP ...4.9 5.2 Fuel and power % ofGDP ...1.0 1.2 Energy consumption per capita kg of oil equiv. ... 3,960 2,959 1.595 1,632 Households with electricity Urban % of households . .. Rural Transport and communication % of GDP . .. Fixed investment: transport equipment Total road length thou. km 215 247 274 INVESTMENT IN HUMAN CAPITAL Health Population per physician persons 312 242 224 362 3,277 Population per nurse *101 90 86 249 Population per hospital bed 85 76 76 136 604 395 Oral rehydyration therapy (under-5) % of cases ... . . .S Education Gross enrollment ratio Secondary % of school-age pop. . ... 53 53 Female Pupil-teacher ratio: primary pupils per teacher ... ., ,25 Pupil-teacher ratio: secondary Pupils reaching grade 4 % of cohort 99 89 . Repeter rate: primary % of total enroll . .. liliteracy % of pop. (age I5+) . .2 5 19 14 Female % of fem. (agels5+) ... .. .17 Newspaper circulation per thou, pop. .. .. 74 125 World kBank Internat orLal hconomacs Department, April 1995  Annex A5 Page 1 of 3 Ukraine - Key Economic Indicators Actual Estimate Projected Indicator 1990 1991 1992 1993 1994 1995 1996 1997 National accounts (as %GDP at current market prices) Gross domestic product 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Agriculturea 24.6 24.7 20.8 23.2 16.3 16.8 16.5 16.2 Industry' 43.1 54.5 52.2 42.6 42.6 40.1 38.9 37.7 Servicesa 28.1 28.8 29.4 33.6 34.9 39.0 38.5 38.5 Total Consumption 82.5 84.2 86.4 92.3 97.0 94.3 89.9 85.5 Gross domestic 18.7 13.8 11.6 8.0 8.8 9.3 12.7 15.3 investment Government investment 14.4 10.2 8.2 5.1 2.5 2.6 2.6 3.6 Private investment 4.3 3.5 3.4 2.9 6.4 6.6 10.1 11.7 (includes increase in stocks) Exports (GNFS)b 27.5 26.1 24.0 25.9 64.5 46.9 50.8 51.5 Imports (GEFS) 28.7 24.1 22.0 26.2 70.3 50.5 53.3 52.3 Gross domestic savings 17.5 15.8 13.6 7.7 3.0 5.7 10.1 14.5 Gross national savingsc .. .. .. .. 2.7 4.8 9.3 13.1 Memorandum items Gross domestic product .. .. .. .. 22820 34953 37360 39557 (US$ million at current prices, with market exchange rates) Gross national product per .. 2636 2753 2439 1913 1632 1486 1372 capita (US$, Atlas method) Real annual growth rates (%, calculated from 1990 prices) Gross domestic product at -3.8% -8.4% -9.7% -14.2% -23.5% -11.8% -2.0% 3.5% market prices Gross Domestic Income .. -8.4% -9.7% -14.2% -23.5% -14.3% -2.8% 4.9% Real annual per capita growth rates (%, calculated from 1990 prices) Gross domestic product at -4.4% -8.6% -10.0% -14.2% -23.1% -11.1% -2.0%/o 3.5% market prices Total consumption .. -6.7% -5.2% -6.8% -22.7% -19.3% -10.7% -3.2% Private consumption .. -8.9% -3.5% -2.8% -22.7%- 17.0% -13.9% -3.8% (continued)  Annex A5 Page 2 of 3 Ukraine - Key Economic Indicators (Continued) Actual Estimate Projected Indicator 1990 1991 1992 1993 1994 1995 1996 1997 Balance of Payments (USSm) Exports (GNFS)b 11707 15850 14713 16399 18984 20365 Merchandise FOB 11308 12800 12111 13647 14685 15848 Imports (GNFS)b 12101 16760 16044 17637 19924 20696 Merchandise FOB .. 11930 15320 14471 15971 18140 18808 Resource balance -394 -910 -1331 -1238 -940 -331 Net current transfers .. .. .. .. 200 200 260 100 (including official current transfers) Current account balance .. .. -620 -734 -1396 -1542 -1255 -897 (after official capital grants) Netprivate foreign direct .. .. 20.0 40.0 91.0 266.0 275.0 400.0 investment Long-term loans (net) 0.0 0.0 386.0 644.0 270.0 -323.0 769.0 674.1 Official 0.0 0.0 100.5 325.9 97.0 -4.0 610.9 698.4 Private 0.0 0.0 285.5 318.1 173.0 -319.0 158.0 -24.3 Other capital (net, including .. .. 310.0 147.0 940.0 565.1 -82.6 -180.0 errors and omissions) Change in reservesd .. .. -96.0 -97.0 95.0 1034.2 294.0 3.1 Memorandum items Resource balance (% of .. .. .. .. -5.8% -3.5% -2.5% -0.8% GDP at current market prices) Real annual growth rates (1990 prices) Merchandise exports .. .. .. .. -13.6% 3.0% 7.6% 6.2% (FOB) Primary .. .. .. 4.3% 9.4% 7.0% Manufactures .. .. .. .. .. -1.5% 1.4% 3.5% Merchandise imports .. .. .. .. -12.1% -2.2% 4.3% 5.0% (CIF) Public finance (as % of GDP at current market prices) Current revenues .. 36.5 41.6 42.6 45.3 42.2 42.5 41.0 Current expenditures .. 46.0 51.2 49.3 49.9 43.1 41.7 39.4 (Continued)  Annex A5 Page 3 of 3 Ukraine - Key Economic Indicators (Continued) Actual Estimate Projected Indicator 1990 1991 1992 1993 1994 1995 1996 1997 Current account surplus (+) .. -9.5 -9.7 -6.6 -4.6 -0.9 0.8 1.6 or deficit (-) Capital expenditure .. 4.3 8.2 5.1 3.8 4.6 4.5 5.4 Foreign financing .. 0.0 0.0 0.2 1.2 -0.9 0.5 0.3 Monetary indicators M2/GDP(atcurrentmarket 78.3 77.9 45.5 34.1 28.0 13.5 13.0 20.0 prices) Growth ofM2 (%) .. 78.0 884.5 2103.0 531.8 117.2 40.1 94.3 Private sector credit growth / .. .. .. .. 70.7 46.5 40.0 73.2 total credit growth (%) Price indices (1994 =100) Merchandise export price .. .. .. 91.2 102.5 112.1 112.1 114.0 index Merchandiseimportprice .. .. .. 93.0 102.1 115.1 125.3 123.8 index Merchandise terms of trade .. .. .. 98.1 100.4 97.4 89.4 92.1 index Real exchange rate index .. .. .. .. 100.0 60.2 57.0 57.0 (1994=100)' Consumption price index .. 91.2% 1210% 4735% 891% 448% 55% 24% (% growth rate) GDP deflator 13% 95% 1764% 3334% 903% 412% 48% 22% (% growth rate) a. The GDP components do not add up to 100 percent since they are estimated at factor cost. b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequited transfers excluding official capital grants. d. Includes use of IMF resources. e. The public sector includes extrabudgetary funds. f. A decrease in real exchange rate index denotes appreciation of local currency.   Annex A6 Page 1 of 1 Ukraine - Key Exposure Indicators Actual Estimate Projected Indicator 1990 1991 1992 1993 1994 1995 1996 1997 Total debt outstanding and 0.0 0.0 553.7 3737.7 7185.0 8186.0 9830.0 11255.1 disbursed (TDO) (USSm)ab Net disbursements (USSm)' 0.0 0.0 553.6 690.2 638.0 1089.0 1645.0 1424.1 Total debt service (TDS) 0.0 0.0 11.7 199.0 293.3 1336.8 1422.4 1684.2 (USSm)' Debt and debt service indicators (%) TDOtXGS' .. .. 4.7 23.6 48.8 49.8 51.7 55.1 TDO/GDP .. .. .. .. 31.5 23.4 26.3 28.5 TDS/XGS .. .. 0.1 1.3 2.0 8.1 7.5 8.2 Concessional/TDO .. .. 0.0 0.5 0.8 0.8 0.6 0.6 11RD exposure indicators (%) IBRD DS/public DS .. .. 0.0 0.0 0.0 0.4 3.6 7.0 Preferred creditor DS/public .. .. 0.0 0.0 0.1 3.0 11.0 16.9 DS IBRD DStXGS .. .. 0.0 0.0 0.0 0.0 0.2 0.5 ShareoflBRDportfolio .. .. .. .. 0.1 0.4 1.0 1.6 IFC (USSm) Loans 0.0 0.0 2.0 2.0 2.0 2.0 Equity and quasi-equity /d MIGA MIGA guarantees (USSm) 0.0 0.0 0.0 0.0 0.0 0.0 a. Includes public and publicly guaranteed debt, prinvate nopguaranteed, use of IM credits and net short- term capital. b. Includes awrears reschedled/regularie. c. 'XGS" denotes exports of goods and services, including workers'remittances. d. Includes equity and quasi-equity t"aes of both loan and equity instruments.   .\nie .\7 1'agc I ul 2 Status of Bank Group Operations in Ukraine IBRD Loans and IDA Credits in the Operations Portfolio Differencc I aNs ARaiI' Onginal amount in LISS millions betwveen expected Super6sion Ralings Project Loan or Fiscal and actual Development Iniplemovitaiion ID Credit No. Year Borroner Purpose IBRD IDA Cancellations Undisbursed disbursements& Objectives l'Iogrcss Nunber of Closed Loans Credits: 0 Active Loans UA-PA-9106 L36140 1993 UIKRAIE INSTTUTION BUILDING 27.00 23.33 18.73 S I UA-PA-9108 L38310 1995 LKRAINE REIABILITATION 500.00 0.75 0.75 S S UA-PA-38820 18650 1995 UIRAINE HYDROPOWER REHAB 114.00 114.00 9.59 S S LUA-PA-9117 L3S910 1995 UTKRAINE AGRIC. SEED DEvELOP 32.00 32.00 8.24 S S UA-PA-34581 L39850 1996 UKRAINE HOUSING 17.00 17.00 TOTAL 690.00 0.00 0.00 187.08 37.31 .Acti%e Loans Closed Loans Total Total disbursed (IBRD and IDA) 502.92 0.00 502.92 Of wnkich repaid 0.00 0.00 0.00 Total now held by IBRD and D)A 690.00 0.00 690.00 Amount sold 0.00 0.00 0.00 Of wtkich repaid 0.00 0.00 0.00 Total undisbursed 187.08 0.00 187.08 a. Intended disbursements to date minus actual disbursements to date As projected at appraisal. b. Follovving the FY94 Annual Resicw of PortfoGo Performance (ARPP), a letter-based system was introduced (HS=Fighly satisfactot, S-satisfactorn, U=unstatisfactor., tL'=hghl unsatisfactory): see Proposedtmprovements in Project and Portfolio Performance RatzngMelthodolog (Secl%194-901), August 23, 1994. Note: Disbursement dat is updated at the end of the furst week of the month.  Annex 7 Page 2 of 2 Ukraine - Statement of IFC Investments As of 12/31/95 (USS millions) Original Gross Commitments Fiscal IFC IFC Held by Held by U,idisb. incl. Year Obligor Type of Business Loan Equity Participants Totals IFC Participants Participants 1994 Ukrine Fund Financial Services 2.00 2.00 2.00 0.80 Total gross commibnents b/ 0.00 2.00 0.00 2.00 Less cancellations, terminations, repayment & sales 0.00 0.00 0.00 0.00 Totl conunibnents now held c/ 0.00 2.00 0.00 2.00 2.00 0.00 0.80 Pending Commitmnut Total pending commitfents 0.00 0.00 0.00 0.00 Total comnmitOnents held and pending commitments 0.00 2.00 0.00 2.00 Total undisbursed commitments 0.00 0.80 0.00 0.80 b/ Gross commitments consist of approved and signed projects. c/ Held commituents consist of disbursed and undisbursed investment.  Annex Cl Page 1 of 4 Ukraine - National Accounts Part A: Current Price Data (in billions of local currency units) Base-eaue (mort lielry) projection Aiau GNP per capita: S 1912.78296152243 ( 1994) Midyear poFulation: 51.921 milliom Adea Ein,ete Projecdion 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Gros domesticproductatmarketprice 167.0 299.0 5033.0 148273 1137800 5138123 7472000 9434894 11412448 13432452 15519855 17683322 19867213 22112208 24378709 Netindirecttaxes 7.0 -24.0 -123.0 883 70169 209873 457864 714909 834645 950888 1083453 1225246 1359499 1463744 1567905 GDP at factor cost 160.0 323.0 5156.0 147390 1067631 4928250 7014136 8719986 10577803 12481563 14436402 16458077 18507714 20648463 22810804 Agriculture 41.0 74.0 1049.0 34439 185461 864102 1230956 1531801 1835711 2130342 2443982 2771475 3113753 3465607 3820831 1ndWudy,ofwhich 72.0 163.0 2625.0 63108 484703 2059793 2903712 3560241 4206781 4812557 5403058 6010362 6624020 7232105 7825318 Manufacturing 58.0 137.0 2245.0 51826 432360 1837357 2590141 3175772 3752493 4292852 4819585 5361306 5908695 6451113 6980266 Services 47.0 86.0 1482.0 49843 397467 2004355 2879469 3627943 4535312 5538664.0 6589362.0 7676239.4 8769941.8 9950752.2 11164654.6 Rsource balance -2.0 6.0 100.0 -464 -66364 -181913 -187945 -79010 -63956 -36086.8 -40137.3 -13727.6 19167.4 22092.9 17432.5 E-xorts(GNFS) 46.0 78.0 1207.0 38370 733590 2410726 3796855 4857345 5812067 6765362 7790756 8879551 10038099 11215285 12437766 Inports(GNFS) 48.0 72.0 1107.0 38834 799954 2592639 3984800 4936355 5876023 6801449 7830893 8893279 10018932 11193193 12420334 Totalexpenditure 169.0 293.0 4933.0 148737 1204164 5320035 7659945 9513904 11476404 13468538 15559992 17697050 19848045 22090115 24361276 Consunptionexpenditr 137.8 251.9 4349.0 136856 1103511 4844631 6714003 8067355 9283536 10889248 12524518 14232770 15960988 17755882 19530592 Governwent 32.0 63.0 1056.8 29150 225000 880084 1414151 1741068 1906953 2150908 2440453 2791017 3130221 3418784 3665510 Private 105.8 188.9 3292.2 107706 878511 3964547 5299852 6326286 7376583 8738340 10084065 11441753 12830767 14337097 15865082 Grossdomesticiiedtment 31.2 41.1 584.0 11881 100653 475405 945942 1446550 2192868 2579290 3035474 3464280 3887057 4334233 4830684 Total gove=mentinvestment b 24.1 30.6 410.6 7573 28000 134025 192714 343556 498208 673629 776754 882028 984721 1088931 1209635 Totalpivate ivcesenl' 7.2 10.5 173.4 4308 72653 341379 753228 1102994 1694661 1905661 2258720 2582252 2902336 3245302 3621049 Total fixed investment 18.9 15.5 152.0 3728 62353 383875 875437 1386277 2117382 2512814 2984372 3406252 3822273 4262593 4752136 Total invedsmendinstocka 12.3 25.6 432.0 8153 38300 91530 70505 60273 75486 66477 51102 58028 64784 71640 78548 Domnestic uvinps 29.2 47.1 684.0 11417 34289 293492 757997 1367540 2128912 2543203 2995337 3450552 3906224 4356326 4848116 + Net factor income 0.0 0.0 -1.6 -456 -3554 -74200 -115123 -158849 -169303 -204972 -271135 -312505 -362092 -405384 -447870 + Nt crent trfed . .. .. .. 313 29400 52000 23851 0 0 0 0 0 0 0 =Nationalavings .. .. .. .. 31048 248692 694873 1232542 1959609 2338232 2724202 3138047 3544132 3950942 4400246 Gromnationalproduct 167 299 5031 147817 1134246 5063922 7356877 9276045 11243145 13227480 15248720 17370817 19505121 21706824 23930839 Grown tionaldispombleincome . .. . .. 1134559 5093322 7408877 9299897 11243145 13227480 15248720 17370817 19505121 21706824 23930839 a. "GNFS" denotes 'gods and nonfactor services." b. Grea dometic fixed capital furmation orly. c. Derived us a residual; includes increa in stocks. d. Total net umequited transfca excluding official capital grnts  Annex Cl Page 2 of 4 Ukraine - National Accounts (continued) Part B: Shares of Gross Domestic Product (percentages calculated using current price data) Base-case (most Irkely) projection Actue Fsate Projection 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Grus domestic product 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Nctindirecrtaxes 4.2 -8.0 -2.4 0.6 6.2 4.1 6.1 7.6 7.3 7.1 7.0 6.9 6.8 6.6 6.4 Agrieulturcvalueadded 24.6 24.7 20.8 23.2 16.3 16.8 16.5 16.2 16.1 15.9 15.7 15.7 15.7 15.7 15.7 Industryvalueadded,ofwhich 43.1 54.5 52.2 42.6 42.6 40.1 38.9 37.7 36.9 35.8 34.8 34.0 33.3 32.7 32.1 Manufacturing 34.7 45.8 44.6 35.0 38.0 35.8 34.7 33.7 32.9 32.0 31.1 30.3 29.7 29.2 28.6 Servicesvalueadded 28.1 28.8 29.4 33.6 34.9 39.0 38.5 38.5 39.7 41.2 42.5 43.4 44.1 45.0 45.8 Reumehhbalanc(X-M) -1.2 2.0 2.0 -0.3 -5.8 -3.5 -2.5 -0.8 -0.6 -0.3 -0.3 -0.1 0.1 0.1 0.1 Exports (GNFS) 27.5 26.1 24.0 25.9 64.5 46.9 50.8 51.5 50.9 50.4 50.2 50.2 5(.5 50.7 51.0 Impoet (GNFS) 28.7 24.1 22.0 26.2 70.3 50.5 53.3 52.3 51.5 50.6 50.5 50.3 50.4 50.6 50.9 Total expenditure 101.2 98.0 98.0 100.3 105.8 103.5 102.5 100.8 100.6 100.3 100.3 100.1 99.9 99.9 99.9 Governmentconsumption 19.1 21.1 21.0 19.7 19.8 17.1 18.9 18.5 16.7 16.0 15.7 15.8 15.8 15.5 15.0 Privateconsumption 63.4 63.2 65.4 72.6 77.2 77.2 70.9 67.1 64.6 65.1 65.0 64.7 64.6 64.8 65.1 Govcrnmnt investment 14.4 10.2 8.2 5.1 2.5 2.6 2.6 3.6 4.4 5.0 5.0 5.0 5.0 4.9 5.0 Privateinvestment 4.3 3.5 3.4 2.9 6.4 6.6 10.1 11.7 14.8 14.2 14.6 14.6 14.6 14.7 14.9 Grossdomesticsavings 17.5 15.8 13.6 7.7 3.0 5.7 10.1 14.5 18.7 18.9 19.3 19.5 19.7 19.7 19.9 Gross national savings .. .. .. 2.7 4.8 9.3 13.1 17.2 17.4 17.6 17.7 17.8 17.9 18.0 Memorandum items GDP deflator 1.0 2.0 36.4 1,251 12,549 64,252 95,344 116,320 130,278 143,306 156,204 168,700 180,509 191.339 200,906 Consumer price index 0.0 0.0159 0.21 10.1 100.0 547.8 850.8 1055.8 1213.9 1346.5 1478.5 1605.5 1728.4 1840.4 1941.2 TotIlaGDP(millioncurrentUSS) .. .. .. .. 22819.9 34953.2 37360.0 39557.0 43789.5 48026.2 52180.5 56371.6 60433.2 64787.4 69455.3 Mktexchangerateused(LCUIUS .. .. .. .. 49860 147000 200000 238514 260620 279690 297427 313692 328747 341304 350999 Percapitagrossnationalproduct .. 2635.9 2753.1 2439.5 1912.8 1631.9 1486.4 1538.3 1660.9 1775.9 1880.5 1981.2 2076.9 2176.9 2281.1 (Alias method: in 1990 USS) a. "GNFS" denotes "goods and nonfactor services."  Annex Cl Page 3 of 4 Ukraine - National Accounts (continued) Part C: Constant Price Data (in local currency, constant 1990 prices) Base-case (most likely) projection .4 ctual Estimate Projection 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 GDPatmarketprices 167.0 153.0 138.1 118.5 90.7 80.0 78.4 81.1 87.6 93.7 99.4 104.8 110.1 1156 121.3 GDPat factorcost 160.0 165.3 141.5 117.8 83.4 74.8 71.7 73.0 78.8 84.3 89.3 94.1 98.8 1038 109.1 Agriculture 41.0 33.4 31.1 32.8 25.6 23.3 22.4 22.8 24.4 25.8 27.1 28.5 29 9 31.4 32.9 Industry, of which 72.0 64.9 50.5 39.4 27.6 22.9 21.8 21.9 23.1 24.0 24.7 25 5 26.2 27 0 27.8 Manufacturing 58.0 54.5 43.2 32.4 24.6 20.4 19.4 19.5 20.6 21.4 22.0 22.7 23 4 24 1 24.8 Services 47.0 67.0 59.9 45.6 30.2 28.6 27.5 28.3 31.4 34.6 37 5 40.2 42 7 45.4 48 3 Resource balance -2.0 3.1 -0.4 -5.3 -5.3 -2.1 -0.3 0.8 1.2 2.0 2.3 2.9 3 5 3.7 3.9 Exports(GNFS) 46.0 39.9 56.0 63.4 58.5 60.2 64.8 68.9 74.4 79.8 85.3 90.8 96.5 1(023 108.4 Imports (GNFS) 48.0 36.8 56.4 68.7 63.7 62.3 65.1 68.1 73.2 77.7 82.9 87.9 93 0 985 104.5 Total expenditure 169.0 149.9 138.6 123.8 96.0 82.1 78.7 80.4 86.4 91.7 97.0 101.9 10) 6 1I 8 117.5 Consumption 137.8 1289 122.5 114.3 87.9 70.5 62.9 609 60.9 644 67.5 706 736 76) 80.2 Government 32.0 32.2 29.0 23.3 17.9 12.8 13.2 13.1 12.5 12.7 13.2 13.9 14 4 14 8 15.0 Private 105.8 96.6 93.5 91.0 70.0 57.7 49.6 47.7 48.4 51.7 54.3 56.8 59 7 62 1 65.1 Gross domestic investment 31.2 21.0 16.0 9.5 8.0 11.6 15.8 19.5 25.4 27.3 29.5 31.3 3310 I5 0 37.3 Total government investment 24.1 15.7 11.3 6.1 2.2 3.3 3.2 4.6 5.8 7.1 7.6 8.0 84 88 9.3 Total private investment 7.2 5.4 4.8 3.4 5.8 8.4 12.6 14.8 19.7 20.2 22.0 23.3 24 7 26.2 28.0 Total fixed investment 18.9 8.0 4.2 3.0 5.0 9.4 14.6 18.7 24.6 26.6 29.0 30.8 32 5 34.4 36.7 Total changes in stocks 12.3 13.1 11.9 6.5 3.1 2.2 1.2 0.8 0.9 07 0.5 05 016 ().6 0.6 Terns-of-trade (T) effect 0.0 0.0 0.0 0.0 0.0 -2.2 -2.8 -1 8 -2.0 -2.4 -2.8 -3.0 -3 3 3 5 -3.7 Gross domestic income 167.0 153.0 138.1 118.5 90.7 77.7 75.6 79.3 85.6 91.3 96.6 101.8 1068 112.0 117.6 Domestic saving (TT adjusted) 29.2 24.1 15.6 4.2 2.7 7.3 12.7 18.4 24.7 26.9 29.1 31.2 3;.2 35.2 37.5 Netfactorincome 0.0 0.0 0.0 -0.4 -0.3 -1.1 -1.2 -1.3 -1.3 -1.4 -1.7 -1.8 -I 9 -2.1 -2.2 GNPatmarkcetprices 167.0 153.0 138.1 118.1 90.4 78.8 77.2 79.8 86.3 92.3 97.7 103.0 108.1 1135 119.2 a. GNFS" denotes goods and nonfactor services."  Annex Cl Page 4 of 4 Ukraine - National Accounts (continued) Part D: Annual Growth Rate (calculated from data in conatant 1990 prices) B,-ca (CWxt ltey) prtoNec_i Aadz Ema Prjectio 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 GDP*at raktpick -3.8% -8.4% -9.7% -14.2% -23.5% -11.8% -2.0% 3.5% S.0% 7.0% 6.0% 5.5% 5.0% 5.0% 5.0% Agiclti -7.6% -18.5% -6.9% 5.5% -22.0% -9.0% -4.0% 2.0% 7.0% 5.5% 5.3% 5.0% 5.0% 5.0% 5.0% h_duy, of which -4.6% -9.9%/C -22.2% -22.0% -29.9% -17.0% -5.0% 0.5% 5.5% 4.0% 3.0% 3.0% 3.0% 3.0% 3.1% MA_ctuin4 -2.4% -6.0% -20.S% -25.1% -23.9% -17.0% -5.0% 0.5% 5.5% 4.0% 3.0% 3.0% 3.0% 3.0% 3.1% Seavicca 2.9% 42.4% -10.5% -23.9% -33.8% -5.4% -3.6% 2.7% 10.9% 10.3% 8.3% 7.2% 6.2% 6.5% 6.3% Exports(GNFS)' .. -13.2% 40.3% 13.3% -7.8% 3.0% 7.7% 6.2% 8.0% 7.2% 6.9%/ 6.5% 6.3% 6.0% 6.0% Inp-b (GNFS) -23.3% 53.2% 21.7% -7.2% -2.2% 4.5% 4.6% 7.4% 6.3% 6.7% 6.0% 5.8% 5.9% 6.1% Total qcnditue -11.3% -7.6% -10.7% -22.5% -14.4% -4.2% 2.2% 7.5% 6.2% 5.8% 5.1% 4.6% 4.9