The 2015 reform record: what was actually achieved in the worst year

By every headline measure 2015 was the worst year in Ukraine's independent economic history. Output fell sharply, inflation reached levels not seen since the 1990s, the hryvnia lost the majority of its value against the dollar, and part of the country was occupied.

It was also the year in which more genuine structural reform was enacted than in the preceding decade, and understanding why matters more than the individual measures.

The banking clean-up

The most consequential and least discussed. The central bank withdrew licences from a very large number of banks — roughly half the sector by count — on grounds of insolvency, inadequate capital, or use as a related-party lending vehicle.

This was extremely painful. Depositors lost money above the guarantee limit, businesses lost working accounts, and the fiscal cost of the deposit guarantee payouts was substantial.

It was also the single most important thing done to the Ukrainian economy in the period. The pre-2014 banking sector contained a large number of institutions that were not banks in any meaningful sense but treasury operations for their owners' industrial groups. Removing them made what remained genuinely intermediary, and the sector's stability through the far greater shock of 2022 is directly attributable to it.

Energy tariffs

Household gas and heating tariffs had been held far below cost for two decades, with the difference covered by the state and by Naftogaz losses that ultimately became sovereign debt. The 2015 adjustment raised them toward cost recovery.

It was politically brutal and it eliminated the largest single source of fiscal drain, the largest single source of corruption arbitrage in the economy, and the main disincentive to energy efficiency investment.

Procurement

The ProZorro electronic procurement system moved public tendering onto an open platform where every bid, every participant and every award is visible to anyone. It is among the most successful reforms of the period, and it works because transparency required no enforcement capacity that the state did not have.

The fiscal adjustment

The deficit was brought down sharply through a combination of the tariff adjustment, expenditure restraint and inflation eroding the real value of nominal commitments. The last of these is not a policy achievement but it was arithmetically significant.

Why it happened then

The uncomfortable general lesson is that these reforms had been recommended for fifteen years and were enacted only when the alternative was fiscal collapse. External financing was conditional, the war made the status quo unaffordable, and the political cost of resistance temporarily fell below the cost of inaction.

Reform in this pattern is crisis-driven rather than consensus-driven, which means it moves fast, goes deep, and is vulnerable to reversal once the pressure lifts.

What was not achieved

Judicial reform, which was attempted repeatedly and remained the central unresolved problem. Effective prosecution of large-scale corruption, where new institutions were created but conviction rates stayed low. Land market liberalisation, which waited until 2020. And privatisation of the remaining state enterprises, which barely moved.

The pattern is clear enough: reforms that could be implemented by writing rules and building systems succeeded. Reforms that required changing the behaviour of existing institutions and the people inside them did not.

That distinction has held for every subsequent year, and it is the single most useful thing to know when assessing any announced Ukrainian reform programme.

Related in this archive

• The 2015 restructuring: what the GDP warrants really cost
• The last year of the old model: a review written at the end of one era
• An economy that stopped growing, and the three reasons why
• Ukraine Annual Review 2015: the worst year and the most reform

That the most reform happened in the worst year reminds me of company rescues: nobody changes their structure while comfortable. It went the same way on our side in 2015 — the cost discipline we put in that year would never have been introduced in a good one. A crisis is not an opportunity in itself; it is the moment when those who object have the least voice.