Ukraine Cabinet publishes 5Y plan: A- rating, 40% real growth

Ukraine’s Cabinet published on Sept. 29 its activity
program that sets ambitious targets for the next five years, including real GDP
growth of 40% over the period, USD 50 mln in FDI and 1 mln new jobs. “It’s a
lot more than we are attracting now, but it’s absolutely realistic if to
consider the example of successful countries, such as Georgia,” Prime Minister
Oleksiy Honcharuk told a Sept. 30 press briefing, adding, “This means that we
should create such conditions that it will be comfortable for people to launch
businesses … and for it to be interesting for foreign investors to enter
Ukraine and establish their manufacturing here.”

The program, published on the rada.gov.ua website,
includes each ministry having set the targets that it is supposed to reach in
the next five years.

Ukraine’s Finance Ministry is promising to introduce
an agency for state debt management, make state debt paper more liquid, reduce
the foreign currency portion of state debt to 50% (from 66% currently) and cut
the state debt to GDP ratio to 40% by end-2024 (from about 58% currently). The
Ministry also aims to upgrade Ukraine’s credit rating to A- by 2024 (CCC+/B
currently). It plans to “attract investors to state banks” and reduce the
state’s share in the banking system to 20% (currently, state-owned banks
account for 60% of banking assets).

The Economy Ministry plans to sell “hundreds” of state
enterprises to “efficient owners.” It will create a special fund to
control strategic state enterprises. Those that conduct commercial activity
“will be corporatized by means of transitioning them into corporations,” the
program said. The plan also calls for liquidating at least a thousand state
firms that are inefficient. “The state will no longer spend the costs of
taxpayers to support ineffective, loss-producing enterprises,” the program
said.

The economy ministry also expects that launching the
farmland market in October 2020 (as stipulated by the draft law) will boost
productivity by 6% p.a. As a result, the ministry expects land lease rates will
rise to UAH 4,000/ha on average in 2024, from UAH 1,700 in 2018. It plans to
provide state support for small farmers who will take loans for land purchase
so that their effective borrowing rates won’t exceed inflation. It also plans
to deregulate land management, equalize the land tax, introduce safeguards
against land raids and compile a complete farmland cadaster by the end of 2020.

The Infrastructure Ministry is planning to restructure
Ukrainian Railways (RAILUA) to separate it into infrastructure, cargo and
passenger divisions. It also plans to complete an IPO of Ukrainian Railways.

Alexander Paraschiy: The
government’s action program is so “ambitious”, as characterized by PM Honcharuk,
that in our view, its key targets do not look achievable in five years. From
the document, we see no clear drivers that could lead to massive FDI and that
fast economic growth. That said, the government will have achieved an economic
and financial breakthrough if it is able to reach just half of its goals.
Meanwhile, concrete steps in farmland reform and privatizing state enterprises
will be critical to fulfill if any of the more ambitious goals are to be
achieved.