Ukraine - Country assistance strategy public information notice (CPIN)

Report No. PIN14 Ukraine CAS: Public Information Notice World Bank Board Discusses Ukraine Country Assistance Strategy 1. On May 20, 1999, the World Bank's Board of Executive Directors discussed a Progress Report on the Bank Group's Country Assistance Strategy for Ukraine. The period covered by this report was from March 1998 to June 2000. Country Context 2. Since late 1994 when Ukraine, supported by the Bank and the Fund, launched its program of stabilization and economic reform, there have been some notable successes as well as some significant failures. There has been success in controlling inflation but macroeconomic stability viewed more broadly has remained fragile. Since Independence in 1991 there has been a relentless decline in overall economic activity. The Ukrainian population has suffered as GDP has continued declined continuously for eight years. The Bank completed a Poverty Assessment in 1996, which concluded that poverty then touched as much as 28t of the population. Newer evidence shows that the critical economic situation of the recent past has worsened income, health and many other social indicators. Bank Strategy 3. The proposed strategy for the remainder of FY99 and FY00, pending the preparation of a full CAS, is a cautious one, responding to a difficult and uncertain macroeconomic and political situation. It recognizes the main 1996 CAS structural reform agenda which had four key elements: (i) promoting private sector activity; (ii) restructuring the public sector; (iii) ensuring the social sustainability of the transition; and (iv) ensuring environmental sustainability. However, the re-tuned strategy will respond to the relatively good progress achieved with elements (i) and (iv) and the much poorer progress with respect to elements (ii) and (iii). It will also condition new commitments of lending under these four heads by reference to specific triggers which indicate (a) the degree of macroeconomic stability and (b) the degree of commitment to reform. The former will be indicated in part by continued compliance with the IMF's Extended Facility (EFF). The latter will be signaled by specific actions indicative of real progress in public sector reform; private sector development; and the large strategic privatizations geared to raising funds necessary to fill the country's funding gap and retire short-term, expensive foreign currency debt. The assessment is that, in the absence of such measures, the country could again face serious financial difficulties of the type encountered in August 1998. Priorities for Bank Assistance. 4. In the difficult political and economic circumstances likely to prevail during the period covered by the Report, lending volumes may fall below those of recent years. However, the Bank expects to provide financial assistance in the following main areas. . Disbursements in respect of three adjustment loans already approved by the Executive Directors namely the Financial Sector Adjustment Loan; the Second Enterprise Development Adjustment Loan; and the Coal Sector Adjustment Loan. . New investment lending and guarantee operations in high rate of return projects which will retain viability and importance even in a very poor general economic climate. The sectors covered are mainly high- technology energy, environment and rural finance. FY2000 potential commitments are targeted to be around $120 million. . New adjustment and investment lending in the event that the triggers  for higher case lending are met. These new operations would cover areas such as public administration reform and intergovernmental finance reform. Commitments in FY2000 could increase by $300 million under these circumstances. . An enhanced program of economic and sector work (ESW) designed to maintain forward progress in areas where Bank advice is already demonstrating a serious potential to promote further reform. Examples for FY2000 include ESW on poverty and the system of social protection; pension reform; anti-corruption programs; foreign debt management; and further work on financial and credit markets. Partnerships 5. Coordination with many other donors in developing and implementing reforms in Ukraine will continue to be an important part of the Bank's activity. The Bank's Resident Mission is playing a central role in coordinating donor assistance in the field through regular group meetings for the financial, energy and other sector teams organized at its initiative. Headquarters has also organized periodic donor coordination conferences, in close cooperation with the European Commission, and plans to continue this practice. Coordination with the IFC on issues of privatization and financial sector development is expected to remain very important. - 2 -