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Ukraine: Continuing Reform Momentum Key to Accelerating Growth

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Cyril Muller, World Bank Vice President for Europe and Central Asia, visited Kyiv today to commend Ukraine on the wide-ranging reforms the country has undertaken recently and which led to the approval of a $750 million Policy Based Guarantee for budget financing by the World Bank in December 2018. Muller also discussed how Ukraine can boost economic growth going forward, underscoring the importance of maintaining the reform momentum for the benefit of all Ukrainian citizens.

“The Policy Based Guarantee is a major achievement because it supports historic reforms to strengthen the foundations of economic growth and macroeconomic stability in Ukraine,” said Mr. Muller. “It will help Ukraine raise $1 billion from international markets to finance its budget at a time when access to markets is particularly constrained.”

Mr. Muller met with Prime Minister Volodymyr Groysman, as well as the Minister of Finance, Minister of Education, and the National Bank of Ukraine, to discuss the country’s reform plans going forward to boost economic growth and living standards. Muller also met with members of the Public Council of International Experts participating in the selection of judges for the High Anti-Corruption Court.

“Over the last couple of years, Ukraine has taken major steps to reforms pensions, health care, and energy subsidies, and has approved legislation to establish an anti-corruption court, and strengthen state-owned banks,” said Muller during his visit. “But more needs to be done to build upon the results achieved to date, especially with regard to opening the land market, unbundling the gas sector, and cleaning up non-performing loans.”

In Kyiv, Mr. Muller also participated in the launch of a new World Bank report, “Ukraine’s Growth: Past, Present, Future”. The study argues that achieving high, inclusive and sustainable growth will require higher productivity of the domestic economy, more benefits from trade and integration into the global economy, and stronger domestic economic institutions to withstand pressures from vested interests.

The report argues that reforms in three areas, in particular, are needed to reignite productivity growth: 1) creating supportive conditions for private sector development by adjusting the role of the state; 2) addressing corporate debt overhang by strengthening the legal framework, strengthening the financial system, and shoring-up the fiscal position of the government; and 3) strengthening Ukraine’s markets by lifting the moratorium on agriculture land sales and increasing incentives to accumulate savings and human capital.

Since May 2014, the World Bank has provided a total of $5.5 billion to Ukraine (including four development policy loans and seven investment operations), as well as a $500 million gas guarantee. The World Bank’s investment projects support improving basic public services that directly benefit the people of Ukraine, by improving water supply, sanitation, heating, power, roads, social protection and healthcare, as well as private sector development.

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Ambitious Reforms for Stronger Economic Growth in Ukraine

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Economic growth in Ukraine picked up to 3.6 percent in the first half of 2019 and 4.2 percent in the third quarter driven by a strong agricultural harvest and consumption growth from higher wages, remittances, and a resumption of consumer lending, according to the World Bank’s latest Ukraine Economic Update. At the same time, investment growth has not yet picked up to levels needed for stronger and sustained economic growth.

“Delivering on the ambitious reform agenda of the new government to boost investment and economic growth will help create jobs and improve living standards,” said Satu Kahkonen, World Bank Country Director for Belarus, Moldova and Ukraine. “The key reforms include establishing a transparent and efficient agricultural land market, demonopolizing the gas sector through ownership unbundling of Naftogas, and increasing the efficiency of bank lending to the private sector by reducing non-performing loans in state-owned banks.”

If the key reforms move forward expeditiously, economic growth is projected at 3.6 percent in 2019, 3.7 percent in 2020, and 4.2 percent in 2021.

Sound fiscal and monetary management, including efforts to keep current public expenditures under control, are helping reduce public debt, inflation, and interest rates in 2019. Public and publicly guaranteed debt is projected to decline to 52 percent in 2019 from a peak of 81 percent in 2016. Inflation declined to 6.5 percent in October 2019 from 9.8 percent at end-2018, which has allowed the National Bank of Ukraine to reduce the key policy rate to 15.5 percent in October from 18 percent in April.

Continuing the prudent fiscal management going forward by addressing expenditure pressures from wages and social benefits will be important to further reduce inflation and interest rates and support stronger economic growth and higher living standards.

It will also be important to mobilize adequate external financing to meet significant public debt repayments in 2019-2021.

Establishing a land market for agricultural growth

According to the World Bank’s Special Focus Note, lifting the moratorium on agricultural land sales and establishing a transparent and efficient market for agricultural land has the potential to boost economic growth in Ukraine by 0.5 to 1.5 percent per year over a 5-year period.

Ukraine has the largest endowment of arable land in Europe, but agricultural productivity in Ukraine is a fraction of that in other European countries.

The moratorium on agriculture land sales is a major impediment to attracting investment and unlocking productivity in agriculture. The moratorium undermines the security of land tenure and incentives to undertake productivity enhancing investments such as irrigation, move into higher value-added crops, and adopt new technologies.

“The Draft Land Turnover Law passed the first reading in Rada last week in an important breakthrough,” said Faruk Khan, World Bank Lead Economist for Belarus, Moldova, and Ukraine. “Enactment of the land turnover law, along with complementary legislation needed to safeguard transparency and efficiency, will be a major milestone in strengthening Ukraine’s growth prospects going forward.

Access to financing for small, credit-constrained farmers will be important to enable them to participate in the market and improve their productivity.  Financing instruments should be effective and sustainable, which means targeting them to small farmers and designing them in a manner that provides incentives to improve productivity and adopt higher value-added crops and new technologies, at an affordable fiscal cost.

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Human Rights

US pardons for accused war criminals, contrary to international law

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A presidential pardon for two United States soldiers accused of war crimes, and a sentence reduction for a third, “run against the letter and the spirit of international law which requires accountability for such violations”, the United Nations human rights wing said on Tuesday.

“While pardons exist in international law, and can properly address issues of injustice or unfairness”, Rupert Colville, Spokesperson for the UN High Commissioner for Human Rights (OHCHR), told reporters at a regular press briefing in Geneva that these cases showed no circumstances to suggest anything other than “simply voiding the otherwise proper process of law in the cases”.

“These pardons send a disturbing signal to military forces all around the world”, he added.

The accused

According to news reports, Lieutenant Clint Lorance was tried and convicted for ordering the shooting of Afghanistan civilians in 2013 and handed down a 20-year prison sentence. Last Friday, he was given a full pardon.

Major Mathew Golsteyn was charged with executing an unarmed Afghan man who was a suspected Taliban bombmaker in 2010. He was scheduled to be tried in February.

And Chief Petty Officer Edward Gallagher was charged with murdering a captive in Iraq. He was acquitted but received a demotion for posing with the corpse for a photograph. President Trump on Friday vowed to restore his rank.

“These three cases involve serious violations of international humanitarian law, both proven and alleged, including the shooting of a group of civilians and execution of a captured member of an armed group”, said Mr. Colville.

Some US news outlets applauded President Donald Trump’s reprieves, while others saw them as a sign of disregard for the decisions of military juries as well as for the judicial process itself.

“International Humanitarian Law establishes the obligation to investigate violations and prosecute war crimes”, reminded Mr. Colville.

He pointed out that by investigating the allegations, and initiating and completing criminal proceedings, the US military justice system had been in compliance with international law. 

Underscoring that “victims of gross human rights violations and serious violations of international humanitarian law have the right to a remedy”, Mr. Colville maintained that the pardon terminating further criminal proceedings in the case of Major Mathew Golsteyn, was “particularly troubling”.

He elaborated that remedies include equal and effective access to justice, the right to the truth, and to see perpetrators serve punishments proportionate to the seriousness of their conduct, “rather than see them absolved of responsibility”. 

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EU Politics

Rwanda: EU provides €10.3 million for life-saving refugee support measures

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During his visit to Rwanda, Commissioner for International Cooperation and Development Neven Mimica has announced a €10.3 million support package to the UNHCR’s Emergency Transit Mechanism (ETM) in Rwanda, which provides a life-saving avenue out of Libya for people in need of international protection, with a view to their further resettlement. The funding is provided through the Emergency Trust Fund for Africa. This initiative builds on the example of the ETM Niger, through which more than 2,900 refugees and asylum seekers have been evacuated out of Libya since 2017.

High Representative/Vice-President Federica Mogherini said: “The Emergency Transit Mechanism in Rwanda is a vital life-saving measure to bring people in need of international protection out of Libya. It is an important sign of African solidarity and of partnership with the European Union. It broadens the support to the most vulnerable people held in Libyan detention centres that need to be closed urgently.”

Commissioner Mimica said: “This project will support efforts of the Government of Rwanda to receive and provide protection to about 1,500 refugees and asylum-seekers who are currently being held in detention centres in Libya. Such a remarkable and powerful proof of African solidarity should be further encouraged, replicated and supported.”

Background 

The UNHCR has evacuated more than 4,250 refugees and asylum-seekers out of Libya to other countries since 2017.

However, around 4,700 people are currently estimated to be held in dire conditions inside detention centres in the country. They urgently need to be moved to safety and to be provided with protection, lifesaving assistance, and durable solutions.

Following the escalation in and around Tripoli, namely the July air strike on a migrant detention centre, the EU continues to support the vital work of the Gathering and Departure Facility on location.

The EU is also supporting the UNHCR’s increased efforts to transfer to Tripoli the most vulnerable people in need of international protection from conflict areas where they are at risk, pending their evacuation outside of Libya.

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