A matrix of reforms: Coordinating commitments and conditionalities

While Ukraine’s partner institutions and countries commit to this objective, their support comes with conditionalities focussing on the reform progress. However, their conditionalities are not identical. The Ukrainian government, in cooperation with the World Bank, the Kyiv School of Economics (KSE) and the Centre for Economic Strategy (CES) have established a Reform Matrix that brings these conditionalities under one umbrella. This tool systemizes the reform implementation, analyses and monitors its progress, and finally provides an accountable transparent view for national and international stakeholders. All in all, the implementation path will bring Ukraine closer to its objective of reforming and European integration.

Economic background

Ukraine’s economy is facing a severe contraction due to war-related challenges. Since Russia’s full-scale invasion in 2022, GDP has dropped by around 20% as well as both capital and labour availability has reduced. With about 25% of the population displaced and people joining the military, the labour force has significantly shrunk. Almost 40% of the total damages are related to housing. Moreover, industrial, energy and transport capacities have been damaged, destroyed or occupied. Exports are struggling due to blockades and the loss of key resources. Global oil prices are rising, and natural gas prices remain high. Ukraine’s consumer inflation increased slightly to 5.4% in July, driven by higher business costs, hryvnia depreciation as well as increase in electricity tariffs. A significant electricity shortage dampened business and consumer sentiment in June, but the agricultural sector continued to grow strongly. The labour market recovery slowed down, with fewer vacancies and a decrease in employment. The current account deficit widened due to increased service imports and dividend withdrawals, combined with a substantial trade deficit in goods. While peace could restore security and partially remove these constraints, rebuilding labour supply and infrastructure will require substantial international aid, with future growth likely driven by exports and integration into the EU. As a result of this challenging economic environment, tax revenues do not meet expenditures. As Ukraine does not have access to international capital markets, it is dependent on international financial assistance in closing the cumulative budget gap of ca. USD 80 bn between 2024 and 2027 according to the recent IMF estimate. However, the Ministry of Finance expects that the external financing needs will be even higher.

Financial assistance is linked to reform conditionalities

In order to advance on the EU accession path and receive financial assistance from partner countries, Ukraine has undertaken a number of reform commitments, stipulated in the following four structural documents:

1. EU Commission’s recommendations for Ukraine’s EU candidate status
2. IMF Extended Fund Facility
3. The Ukraine Plan under the Ukraine Facility
4. World Bank Conditions (Development Policy Loan; DPL)

Each of these documents provides certain conditions and recommendations that are part of major structural reforms in Ukraine. All conditions and recommendations are divided into three broad groups:

• Underlying enablers (public administration reform, public financial management, judicial system, fight against corruption and money laundering),
• Economic reforms (financial markets, management of public assets, human capital, business environment, decentralization and regional policy) and
• Key sectors (energy, transport / export logistics, agri-food Sector, critical Raw Materials, Entrepreneurship / SME development / processing industry, IT green transition / environmental protection)

For effective decision-making and management of the reform process, the Ukrainian government, together with the World Bank, the KSE and CES created an analytical tool – the Reform Matrix. It focuses on the following four objectives:

• Systematize the effective implementation of the conditionalities and recommendations set for Ukraine by the EU, IMF, International Investment Bank and other institutions under the signed reform agreements in order to join the EU and receive financial assistance from international partners
• Analysing the necessary changes and plan their implementation
• Conduct ongoing monitoring to check the status of implementation
• Ensure accountability to the public and coordination with international partners, including the Multi-Donor Coordination Platform for Ukraine (MDCP).

The Reform Matrix includes different measures to implement the recommendations of international partners and the conditions of financial support programmes. Recommendations include a list of steps suggested by international partners that will accelerate Ukraine’s European integration process and improve synchronization in key areas. Thereby, the Reform Matrix consists of the four structural documents mentioned above distributed across six clusters, which correspond to the clusters of the EU accession process.

Success quantification, opportunities and challenges

The progress will be assessed according to a 5-point system, where 5 is given to conditions and recommendations that have been fully fulfilled and confirmed by international partners, and 0/1 to those that have not been fulfilled or are at the initial stage. Within this system and in line with international practice, green will be used to identify those conditions and recommendations that have been met, yellow – in progress, and red – at the initial stage. The Reform Matrix offers a powerful tool to monitor and track the effectiveness of reform implementation in Ukraine, significantly accelerating the country’s path to EU membership and the provision of financial assistance. Also, this framework enables the prioritisation and integration of economic sectors most ready for inclusion in the EU market, while also fostering and supporting those still in their early stages of development. However, challenges remain, including the lack of a comprehensive list of Ukraine’s commitments and the short deadlines for fulfilling these obligations along with Ukraine’s political unwillingness to implement certain reforms.

Outlook

The future development of the Reform Matrix envisions its expansion with new conditions, recommendations, and continuous updates. This also involves developing a system of indicators to prioritize reforms that will accelerate the integration of Ukraine’s economy into the European framework, along with a scorecard to evaluate the implementation and effectiveness of the Reform Matrix. Moreover, the establishment of a Growth Lab at the Kyiv School of Economics, in collaboration with the Harvard Growth Lab, will significantly enhance analytical capabilities related to the reform effort, leading to overall improvements in both the reform process and the Reform Matrix itself.

All these steps will likely accelerate the reform process and bring Ukraine closer to full European integration.

Nataliia Shapoval is Chairman of KSE Institute, Vice President for Policy Research at the Kyiv School of Economics.

Vira Ivanchuk is Senior Analyst at the Kyiv School of Economics.

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