Ukraine Annual Review 2015: the worst year and the most reform
The deepest contraction of the period and the largest volume of structural reform since independence, in the same twelve months. The connection between those two facts is the whole lesson.
The year in one paragraph
Ukraine recorded its second consecutive year of severe contraction with inflation at levels not seen since the 1990s, and in the same twelve months raised household energy tariffs toward cost recovery, resolved a large part of its banking sector, restructured its external debt, piloted an open electronic procurement system, and ended a gas import relationship that had lasted since independence.
The four quarters
Q1 — currency low and stabilisation; new multi-year IMF programme.
Q2 — energy tariff reform; banking resolution at pace.
Q3 — debt restructuring agreed; procurement system piloted.
Q4 — eastern gas imports end; EU free trade area takes effect from 1 January.
Why the reform happened
Not because the political class changed its mind. Every one of these measures had been recommended for a decade and declined.
They happened because the alternative had been removed. The fiscal position could not sustain the gas subsidy. The banking sector could not be left as it was without a systemic failure. The debt could not be serviced on its existing schedule. External financing was conditional on all of it, and there was no other source.
Reform under these conditions is fast, deep and unpleasant. It is also the only kind that this political system has produced.
What worked and what did not
Worked: banking resolution, energy tariffs, procurement, central bank independence, debt restructuring, macroeconomic stabilisation.
Did not work: judicial reform, prosecutorial reform, privatisation of state enterprises.
The distinction is the same one this archive has recorded throughout. The first group could be implemented by removing institutions or building new systems. The second required the cooperation of the people whose position the reform reduced.
What carried into 2016
A stabilised currency, a smaller and sounder banking sector, an energy price that reflected cost, an EU free trade area in force, an economy that had stopped contracting, and a judicial system unchanged.
The commercial reading
2015 is the year that determined whether Ukraine would be a viable market in the following decade, and the answer given was yes — but through measures taken under compulsion, not through choice.
For a company assessing this market afterwards, the relevant conclusion is that the institutional foundations laid in 2015 are the ones the country still runs on. The banking system that held through 2022, the floating exchange rate, the procurement transparency, the energy pricing — all of it dates from this single year, and all of it happened because there was no alternative left.
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