The Government of Ukraine has achieved a considerable progress in reforms
From the speech of the Ukrainian Minister of finance Natalie Jaresko at the briefing with Prime Minister of Ukraine Arseniy Yatseniuk and US State Secretary of the Treasury Jacob Lew on 13 November 2015:
“…This year our Government has achieved a considerable progress in our reforms:
(1) Now we live up to our financial capacities, fulfill all public social welfare obligations towards our citizens and supply our armed forces without increasing the budget deficit;
(2) We have changed our regulations on public spending – we have stopped huge subsidies to inefficient branches and state-owned enterprises and re-directed a major part of the funds to those who really need support from the state including the most vulnerable citizens (more than 4m households will be receiving subsidies to pay for municipal utilities);
(3) We have agreed a support program with the IMF amounting $17.5b for next four years. We have been strictly following our obligations and have already received $6.7b in financial support this year. We are implementing the IMF program which enables us to receive support from other international partners including the USA.
(4) We restructured our external sovereign debt by immediate write off of $3b of our debt burden.
(5) We move towards more transparency in the Government. Our first high-quality projects are proving that. Among these projects are: new National Police, electronic procurement, open budget project E-Data.
(6) We improve the quality of public services for citizens and business (by introduction of on-line services, radical restructuring of the State Fiscal Service).
(7) We work on development of the Tax Reform which has three main goals: to reduce tax burden for business, reduce administrative burden and making fair and equal rules of the game in order to restore justice among all groups of taxpayers. Nevertheless we have lot of work ahead of us.
In particular, the Government plans to submit a package of laws to the Parliament within the next few weeks. These laws will include the 2016 State budget draft law which is based on the new tax base and will also reduce public expenditures. This reduction is supposed to be done through the structural reforms in a broad number of fields.
Approval of the balanced 2016 budget, as well as implementation of other reforms, agreed in the Memorandum with the IMF, will allow Ukraine to receive almost $4b of financial support, including US loan guarantees amounting $1b and the new IMF tranche amounting $1,7b.
This $4b financial support will help to strengthen our international reserves now equal to $13b….”
The full text of the speech is here:
Ukraine Ministry of Finance Newsletter:
Ukraine's reform program continues to deliver
/At the launch of the hugely successful US-Ukraine Business Forum <http://uacrisis.us3.list-manage.com/track/click?u=96beb0d9e72c074aac8cf21c6&id=961287a48b&e=666ccdcaa4> in Washington DC earlier in July, I announced our proposals <http://uacrisis.us3.list-manage1.com/track/click?u=96beb0d9e72c074aac8cf21c6&id=04efde6a59&e=666ccdcaa4> for new royalties for private gas exploration. Our government has listened to the needs of business and investors, as well as analyzing international gas regimes, and our proposals will unleash the potential of our domestic resources. The new law proposes, from 1 October 2015, to halve the existing royalty rates. Reducing these rates, alongside additional reforms in energy efficiency and reverse gas flows, will strengthen Ukraine’s capacity to be self-sufficient in natural gas within a decade. These measures also lessen the dependence on gas supplies from Russia and move towards a more complete framework for energy security, while improving competitiveness across the sector.
Our domestic reform program continues to deliver. We have approved a program of reform of the State Fiscal Service. This will improve quality and efficiency, streamline key tax and customs systems, increase transparency and openness, and bring it closer to European standards of operation. From 1 July 2015, updated legislation obliges the use of cash registers by the third group of tax payers (entrepreneurs) whose annual income is more than 1 million UAH. Our reform program shows we are tackling our problems head on.
There is a growing and vocal body of support from international experts for Ukraine, our reform program, and Ukraine’s position regarding our debt sustainability. Highly supportive statements from IMF Managing Director Christine Lagarde <http://uacrisis.us3.list-manage.com/track/click?u=96beb0d9e72c074aac8cf21c6&id=a5801591b8&e=666ccdcaa4>, US Treasury Secretary Jacob Lew <http://uacrisis.us3.list-manage.com/track/click?u=96beb0d9e72c074aac8cf21c6&id=f31b45a2e8&e=666ccdcaa4>, former Chief Economist at the EBRD Eric Berglöf, <http://uacrisis.us3.list-manage.com/track/click?u=96beb0d9e72c074aac8cf21c6&id=f0b700c03f&e=666ccdcaa4> and former senior fellow at the Peterson Institute Anders Åslund <http://uacrisis.us3.list-manage.com/track/click?u=96beb0d9e72c074aac8cf21c6&id=cb27c14008&e=666ccdcaa4>, add to the growing recognition that Ukraine’s reforms must be supported but also that our debt must be sustainable.
More developments came from the discussions in Washington DC between Ukraine and the representatives of our international commercial creditors. Following engagements and consultations throughout the month, principal to principal negotiations have begun and continue with the common aim of finalizing the terms of Ukraine's debt operation as soon as possible.
These developments and our continuing reforms show that despite the tough economic environment, Ukraine is making progress. The international support for our efforts and decision making strengthens our belief we are creating business and investor friendly conditions needed to return to growth.
Natalie Jaresko, Minister of Finance of Ukraine
Ukraine sends Letter of Intent to IMF Managing Director based on the Memorandum regarding economic and financial policy
22 July 2015
Ukraine has completed the first review of the Extended Fund Facility (EFF) Arrangement with the IMF. As a result, the Government of Ukraine has sent a revised Letter of Intent to the IMF Managing Director, Christine Lagarde.
Yesterday, President of Ukraine Petro Poroshenko, Prime Minister Arseniy Yatsenyuk, Finance Minister Natalie Jaresko, and Governor of the National Bank of Ukraine Valeria Gontareva, signed a revised Letter. This development leads to the possible appointment of the IMF Board Meeting, which will make a decision on the disbursement of the second tranche of as much as $1.7 billion to Ukraine to replenish Ukraine's National Bank's reserves.
The Ministry of Finance aims to stabilize the Ukrainian economy and to create the conditions for returning to growth in 2016. Combined with reforms carried out by the Government of Ukraine, the new tranche will encourage growth in the economy and re-establish credibility of Ukraine internally as well internationally.
In line with the Memorandum, Ukraine had to fulfill IMF's prior actions and to adopt four draft laws. After the Verkhovna Rada of Ukraine has voted for these draft laws on 16 July 2015 making substantial progress in reforming the public finances, strengthening the protection of depositor’s rights, and fighting against corruption.
Reforming Ukraine: An Open Letter To The U.S. By Top Ukrainian Officials
13 July 2015
By Natalie Jaresko, Minister of Finance of Ukraine, Aivaras Abromavicius, Minister of Economic
Development and Trade of Ukraine, Oleksiy Pavlenko, Minister of Agrarian Policy and Food of Ukraine, Andriy Pyvovarsky, Minister of Infrastructure of Ukraine, Dmytro Shymkiv, Deputy Head of the Presidential Administration of Ukraine and Andriy Kobolyev, Chief Executive of Naftogaz
As officials of the new Ukraine, our appointments reflect the profound changes that have taken place since the Revolution of Dignity last year. None of us are career politicians; we were all working in business and finance before taking up our current posts. Ukrainian President Petro Poroshenko and Prime Minister Arseniy Yatsenyuk understood that genuine reform would only happen if driven by new leaders outside of the old elite. We answered this call because of our common vision to transform Ukraine into a freer, stronger and more prosperous country—a vision we are eager to share with the U.S. business community this week in Washington D.C.
We gave up successful careers in the private sector because of the clear determination of Ukraine’s new leadership to make a final break with its Soviet past and forge an entirely new path of development. From top to bottom, there is a consensus in our society for radical change. The transformative policies we are now implementing are unprecedented in Ukraine’s independent history.
Creating a society based on competitive markets and democracy
Our goal is to dismantle the broken structures of cronyism and instead, create an open society based on the rule of law, economic freedom, competitive markets and democracy.
We understand this is a long and sometimes painful road, but the reforms needed are already well under way. Our first priority is to put an end to the endemic corruption that has stifled productive commercial activity and hindered our economic development since independence. The new prosecutor general has already charged 3,000 people. Judiciary and civil services are being slimmed down and reformed with tough new rules on financial disclosure. Transparent and electronic public procurement across government will put an end to insider deals and other abuses in the system. Even the Kiev traffic police—notorious for demanding bribes—has been sacked entirely and replaced with a new, U.S.-trained police force.
Transformations in the energy sector
Some of the most important changes have come in the energy sector, a longtime focal point of high-level corruption. Shady intermediaries who once dominated the sector and corruptly diverted public resources for years were removed at once. Household tariffs have been raised by more than four times on average this spring, accompanied by introducing a new system of direct subsidies for the poorest. These tariffs will be brought to full cost recovery within a year and a half. For the first time in decades we have a government braced for this extremely painful and politically sensitive move that will stamp out fraudulent schemes rooted in subsidized gas prices.
The newly adopted Gas Market Law that implements the European Union’s third energy package in Ukraine will create an open and liberalized domestic market. Whereas our country used to be 100% dependent on Russia for gas imports, we’ve imported almost twice as much gas from the EU than from Russia in the first half of 2015 and dramatically improved our energy security.
Breaking the crooked nexus of private wealth and state power
These reforms are central for achieving another important priority: de-oligarchization. Perhaps more than in any other post-Communist society, Ukraine has been controlled since independence by a powerful group of wealthy oligarchs who have manipulated politics and used their government connections to enrich themselves at public expense. They have often used their influence to block reform, putting their own financial interests before the interests of the nation. Creating an open and transparent market economy with a level playing field is one way we are breaking this crooked nexus of private wealth and state power.
To achieve prosperity and put Ukraine on the path of sustainable economic growth, we need to free our economy and mobilize the skills and talents of the Ukrainian people as a whole. So we are removing obstacles that have prevented the creation of new businesses in the past, cutting back unnecessary business regulation, creating a simplified tax structure, and reducing the size of the state bureaucracy. We have decreased the number of required certificates and permissions required for businesses from 143 to 84. These reforms will lay the foundations of an entrepreneurial revolution.
Ukraine’s untapped potential
Ukraine’s untapped potential is huge and our reform program will help to unlock it, creating new opportunities for investment. We enjoy full and open access to the EU’s single market along with a skilled workforce at the EU’s doorstep. Currency depreciation, while difficult and painful for many, has made our manufacturing and other export-focused industries highly competitive. Despite the tragic conflict on our eastern border, we became the second largest grain exporter in the world this year and have the capacity to double our production in the coming years. We are also one of Europe’s most advanced and successful IT outsourcing hubs. We have committed to launching a new wave of privatizations and developing our country’s infrastructure in partnership with the private sector.
We are here this week to take part in the U.S.-Ukraine Business Forum because we want American businesses to understand the great opportunities opening up as a result of our country’s transformation. Our backgrounds in the private sector help us understand what it takes for trust to be built and for business to flourish. We are committed to making our country a better place to live for Ukraine’s citizens and a better place to invest for U.S. businesses.
Ukraine’s success is one in which all can share.
Reduced gas royalty tax to increase investment, stimulate domestic production and improve Ukraine’s energy security
13 July 2015
Today, at the U.S.-Ukraine Business Forum Conference taking place in Washington, D.C., Ukraine’s Finance Minister Natalie Jaresko announced new royalties for private gas exploration in Ukraine developed by the Finance Ministry and submitted to the Cabinet of Ministers of Ukraine. The proposal is to be submitted to Parliament immediately after the Government’s approval of the relevant draft law.
This strategic step forward follows significant action on diversifying gas import routes and eliminating corruption in the sector overall. It aims at unleashing the substantial potential of domestic production by ensuring the competitiveness of the Ukrainian gas exploration market, making sure investors can reasonably achieve expected rates of return. Current royalty levels are some of the highest in the world, discouraging increased levels of domestic extraction.
“By properly unleashing the potential of our domestic resources we can improve national security and create more competition which in turn will create more jobs in the energy sector and put less pressure on our balance of payments” said the Finance Minister. “What we are putting on the table is a carefully thought through proposal: we have made considerable effort to hear what business needs, expects and requires to make these investments. We have balanced these business expectations with our own fiscal needs. And we have looked carefully at what has worked in other markets”.
Based on best international practices, the new law proposes to reduce royalty rates from 55% for wells less than 5,000 meters, and 28% for wells deeper than 5,000 meters to 29/14 as of October 1, 2015 – the date coinciding with the date of effectiveness of the relevant law on Natural Gas Market. Furthermore, for investments in new wells, the Ministry proposes as of January 1, 2016 a 20/10 royalty rate, maintaining the existing corporate income tax rate, but adding an additional corporate surcharge tax at a 30% rate.
The October action to reduce royalties will have an immediate impact to make it profitable to invest and produce from existing wells. The new regime coming on line in January will encourage new investments. By 2025, the Ministry believes these measures can increase private production of natural gas to 8.5 bcm annually from current levels of 3.5 bcm per year. By 2035, the Ministry aims to bring private production to 11 bcm annually. "The government is doing its part." said Minister Jaresko, "to create conditions that will attract private investment and technology, and take Ukraine out of the energy stalemate it has endured for decades."
Estimates show that if Ukraine can provide stable and competitive royalty rates, a competitive market, and an improving business environment overall -- coupled with reverse gas flows and extensive effort on energy efficiency -- Ukraine could move to natural gas self-sufficiency within a decade. Ukraine's gas imports from Russia would depend on price -- whether Russia offers the cheapest alternative. These measures announced today complete the framework for a strategic roadmap of efficiency, investment and diversification that will make Ukraine energy secure and economically more competitive.
Ministry of Finance of Ukraine
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