Sustaining Ukraine’s strong economic growth will require firm action to cut red tape and bring down barriers to competition, says a new OECD report. It adds that opening up markets to domestic as well as foreign entrants would boost productivity growth while public administration reform and a stronger legal system are needed to improve the business climate and tackle corruption.


In its first Economic Assessment of Ukraine, the OECD says the factors that have helped boost average annual growth to over 7 percent over the past six years are unlikely to last. Import prices for energy are set to rise as cheap Russian gas becomes a thing of the past. Meanwhile, the current boom in consumer credit is bound to slow as household debt increases. Rapid productivity growth, which came quite easily during the initial recovery from the economic crisis of the 1990s, is now becoming harder to achieve. Nevertheless, the OECD concludes that with the right policies and institutions, the country should be able to sustain strong economic growth over the longer term.

The key will be Ukraine’s success in shifting to a pattern of self-sustaining investment and innovation-led growth. But framework conditions for business are poor, making any long-term undertaking extremely risky. Entrepreneurs are hampered by the uncertainty and unpredictability surrounding much public policy as well as by heavy-handed regulation in many spheres. Excessive state intervention fuels corruption, as well as distorting markets, while the weakness of the legal system undermines the security of property rights.

The report recommends regulatory and other reforms to boost competition and calls for a reduction of the role played by state-owned companies in the economy. According to the analysis of product-market regulation presented in the Assessment, the regulatory burden in Ukraine is heavier than in any OECD member country. Yet de-regulation can provide only part of the solution. The report adds that Ukraine needs better, rather than simply less, regulation.

It also needs continued prudent macroeconomic management. The report praises the budgetary discipline that has kept debt low and public deficits in check since 1999. This has helped restore confidence and supported economic growth. But taxes are too high and the scope to cut them is limited by the heavy burden of pension spending, according to the study. Allowing the Ukrainian hryvnia, nominally pegged to the US dollar, to fluctuate more freely on the foreign exchange markets could help reduce inflation volatility and reduce the risks associated with the increasing use of the dollar inside the country.

Ukraine is not one of the 30 member countries of the OECD but has participated in number of OECD studies in areas such as agriculture, energy, the environment and investment policy.