Ukraine - Public Administration Reform Loan Project

Report No. PID6801 Project Name Ukraine-Public Administration Reform... Loan Region Europe and Central Asia Sector Poverty Reduction and Economic Management Project ID UAPE49833 Borrower Government of Ukraine Implementing Agency Ministry of Finance 12/26, Hrushevskogo Street 252008, Ukraine Date This PID Prepared April 15, 1998 Board Date March 25, 1999 Country and Sector Background Since independence in 1991, there has been substantial progress in building a democratic nation state in Ukraine. A new Constitution has been introduced and the machinery of central government has also been put into place. These are major accomplishments for a country that had no legacy of statehood before 1991. However, the new administrative structures lack the maturity of their counterparts in Western countries, and there is a need for further changes in order to increase government efficiency. The key priority now is the recovery of growth and improvement in living standards. To do this, Ukraine needs a competitive private economy and an efficient public sector. Increased investment and a major work program of deregulation is necessary in order to stimulate private sector growth. The success of the reform program also depends on a government administration capable of designing and implementing sound economic development policies, supported by an independent and professional civil service. Rationale for Public Administration Reform The structure of the Government administration in Ukraine still owes much to the former Soviet state system. It remains highly centralized and bureaucratic with a central apparatus of controls and clearances over the activities of ministries and other central and local agencies, and a highly fragmented ministerial structure. There is overload at senior levels and a shortage of policy formulation skills in the civil service as policy making was formerly the responsibility of the Communist Party, not the Government. Lines of accountability within the machinery of government are often confused and there is an overall lack of transparency about where decisions are taken. Most Government ministers in Ukraine play a relatively minor role in policy making compared to counterparts in OECD countries and Cabinet has not been effective in providing the necessary strategic direction to government policy. In short, new structures and arrangements have still to be put in place that allow government to formulate and implement policies effectively. The Proposed Loan The objectives of the public administration reform program in Ukraine are to create: (i) an effective Cabinet and central government machinery for policy formulation, coordination and coherence; (ii) effective government ministries to provide the policy direction and enabling framework appropriate  in a market democracy; (iii) an effective civil service which prepares and implements government policies efficiently; and (iv) a friendly regulatory environment for private businesses which is the main driving force for economic recovery. The public administration reform program in Ukraine is designed to significantly improve the institutional capacity in Government for more strategic, consistent and efficient decision making. Financing The loan will provide balance of payment support and is proposed to be structured in two tranches of US$100,000 each. The proceeds of the loan will be disbursed upon evidence that the agreed adjustment measures have been satisfactorily implemented. Non-eligible imports would comprise only those goods on the World Bank's standard negative list. Disbursements will be made through the National Bank of Ukraine (NBU) to the Ministry of Finance. The NBU will credit the MOF account with Hryvna equivalent at the market exchange rate as determined on the interbank exchange market. The foreign exchange receipts of the loan will be sold by the NBU in the interbank exchange market or will be held in reserve in accordance with the objectives of the monetary policy. The Government will therefore receive non-inflationary budget support. Environmental Aspects This loan will not have direct environmental impact. Project Objective Categories The project supports the Bank's program objectives of development of a policy framework conducive to fiscal and macroeconomic stability, and to private sector development. Technical Assistance and Donor Coordination The loan does not provide financing for technical assistance necessary for the implementation of loan components. Technical assistance programs in the many areas of direct relevance to this project are already being supported by a variety of donors. The PARL will attempt to continue the formula which has worked so well for other projects in Ukraine, namely the combining of project conditionality from the Bank's work with grant financed technical assistance from other donors. For the past year, there has been close and regular contact between the Bank and the most active donors in the field in support of some of the policy actions required by the PARL. Contact Point: Contact Point: The InfoShop The World Bank 1818 H Street, N.W. Washington, D.C. 20433 Telephone No. (202)458 5454 Fax No. (202) 522 1500 Ms. Lilia Burunciuc, ECC11 The World Bank 1818 H Street N.W. Washington, DC 20433 Telephone No.: (202) 473-8865 Fax No.: (202) 477-3288 Mr. David Wood, ECSPE The World Bank 1818 H Street, N.W Washington, DC 20433 -2 -  Telephone No.: (202) 473-7340 Fax. No.: (202) 477-0069 Note: This is information on an evolving project. Certain activities and/or components may not be included in the final project. Processed by the InfoShop week ending September 4, 1998. - 3 -