World Bank Director for Ukraine, Belarus and Moldova
Qimiao Fan is set to leave his office in Ukraine, which he took four and a half
years ago, in February 2012. Fan has been working in the World Bank's
structures for over 20 years specializing on the post-Soviet countries and
South Africa. Prior to joining the World Bank, he was a research fellow at the
London School of Economics for developing countries and countries with
economies in transition.
In an interview with UNIAN, which was Mr. Fan’s last
one prior to his departure to his new office in Bangladesh, the World Bank
official talked about the Bank’s new strategy in Ukraine and the problems with
the development of the Bank’s projects in the country. He also praised the
efforts of the Ukrainian authorities to implement key economic reforms and gave
some recommendations.
The World Bank has been one of the key investors in
Ukraine for more than two decades. With its support, Ukraine has implemented
more than 70 projects and programs worth a total of nearly $12 billion as well
as a range of technical and advisory assistance programs. World Bank-funded
projects help Ukraine create new jobs, improve infrastructure, stimulate
private sector development and to introduce energy-saving technologies.
What do you feel when leaving Ukraine? Did you feel
well in our country?
I regret that I have to leave, I have enjoyed every minute of my four
and a half years here in Ukraine. I am leaving with a considerable amount
of optimism, but also with some serious concerns.
Ukraine has undertaken
the enormous amount of reforms in the last two years, and the country has
taken some very important steps in this transition. But I am concerned as I
think the reforms have not been completed yet, and more needs to be done.
In
the last two and a half years, Ukraine has resembled someone who’s riding a
bicycle uphill. I think we have climbed quite a bit. But this is a very steep
hill, and we’re not at the top yet. And we need to continue to pedal that
bicycle upwards. If we don’t continue to pedal, we will fall back. And you know
what happens when you’re up in the hill and you fall back. That fall is going
to be very hard, and it can be even harder to get up next time around. So my
hope is that Ukraine will not stop in the middle of that hill, and it will
continue to pedal upwards. When it gets to the top, it will be able to ride a
smoother path.
And as long as Ukraine continues riding that path, I think, the
international community, particularly The World Bank Group will continue to
help, to support Ukraine, to push it from behind.
What can you tell us about your successor?
It is better you talk to her when she’s on board. We have announced that
Ms. Satu Kahkonen is the newly appointed Country Director. Ms. Kahkonen will be
based in Kyiv and will take on her duties from July 25, 2016. I can say
that she is a very experienced macroeconomist. She has worked in the
region for quite a number of years and she understands the region well. We will
continue to have to deal with the economic problems arising in Ukraine,
Belarus and Moldova. Therefore, it is quite critical for the new country
director to have this kind of macroeconomic experience and expertise as she
does. It is important to keep in mind that the World Bank Group is an
institution, where leadership does matter. It’s the institution’s setup, the
policies, the process and procedures, and the expertise of the World Bank Group
that matters. And I am very proud to say that we have an outstanding team
working on Ukraine. Regardless who the country director will be, I am
sure they will continue to do an outstanding job.
Will the World Bank policy toward Ukraine change after you leave?
Absolutely not. That’s important for international institutions:
directors change, but policies do not. The World Bank Group’s assistance to the
Ukrainian government is guided by a partnership strategy. The current
strategy will be coming to the end shortly, and we are in the process
of preparing a new strategy. The preparation of that new strategy is based
on our analysis of the key challenges and key constraints in the country for a
sustained and more inclusive growth, as well as on the priorities highlighted
by the Ukrainian authorities and the commitment of the authorities to
reforms, as well as the lessons we learned from implementing the current
strategy. In short, I want to assure you that the World Bank Group’s assistance
strategy to Ukraine will not change because of the change of a country
director.
Will the World Bank change the volumes of funding or its
macroeconomic forecasts for Ukraine as part a new strategy?
I think at this moment, our macroeconomic forecast for Ukraine remains
unchanged. The whole purpose of preparing that strategy is to actually look at
priority areas of our support and the amount of support will be determined in
the process. The level of our support will very much depend on not only
whether the country continues to stabilize, but also whether the country’s
economy can grow. And, more importantly, it will depend on whether reforms will
continue. And thirdly, it will also depend on how effectively our existing
investment portfolio is implemented. These will be very important factors in
the preparation of the new country partnership strategy. Unfortunately,
the implementation of our current investment portfolio has not been
satisfactory.
What are the lost profits? How much money Ukraine could have
received from the World Bank?
Our current investment portfolio in Ukraine is about $3.1
billion, and of that 3.1 billion, about $2.1 billion remains non-disbursed. Two
years ago, our disbursement ratio was about over 30%. In the
last 12 months, the disbursement ratio in Ukraine is about 10%. This
is a huge difference. If the authorities can improve implementation of the
projects and if they can improve disbursement from 10% to 20%, we will be
able to double the amount of money that goes into the economy. 10% of that
non-disbursed amount is about $200 million. Clearly, you can do the
Math.
What is the reason for the low disbursements on the loans provided
by the World Bank?
Firstly, we have increased our lending quite significant in the last two
years, so there are a lot of new projects. In general, new projects take time
to get started.
The second reason is that you have a very unfavorable
macroeconomic environment and that macroeconomic environment does have an
impact on the ability of contractors to deliver things on time.
Thirdly, I
think it’s because there are still very cumbersome processes and procedures in
the Ukrainian government’s implementation of these projects.
And lastly,
clearly, frequent changes in government ministers, deputy ministers and project
directors have a very significant impact n the pace of implementation. I very
much hope that the Government can focus on the last two issues, further
streamlining its own procedures and trying to do as much as they can to
minimize the impact of the frequent changes of government officials on project
implementation.
Can you name those ministers which blocked the World Bank projects in
Ukraine?
The issues I talked about affect all ministries. Unfortunately, these
factors affected all projects. Obviously, some ministries take more proactive
measures than the others, but all of them need to do more. This is an issue
affecting to whole government and all the implementing agencies.
How do you assess the results of the reforms carried out in
Ukraine?
I think we have already seen significant results in
the last two years. The number of reforms, the kind of reforms that Ukraine has
implemented in the last two years is quite remarkable. In these two years,
Ukraine has moved to a flexible exchange rate, Ukraine has undertaken
significant fiscal consolidation, and Ukraine has started to clean up the
banking system and stabilized the banking sector by putting 77 unviable banks
into the Deposit Guarantee Fund for resolution. And Ukraine has taken what I
think are courageous steps to reform tariffs, particular gas tariffs, at the
same time, putting in place a more targeted social assistance program to help
to mitigate impact of this tariff increases on a poor. This reform is extremely
important for a number of reasons.
First, as you know very well, the gas sector
has been a major source of corruption in Ukraine in the last many years. And
this reform in the gas sector has helped to remove a major source of
corruption. And secondly, as you know, Naftogaz deficit has been a major source
of fiscal instability in the country. In many ways, I think the low
tariffs have also not helped energy efficiency and country’s energy security.
There are other reforms that the government has undertaken in the business
environment. They have taken some initial steps to reduce business regulation,
to reduce inspections and the number of payments.
And the government has also
starting to improve the efficiency and capability in public spending,
particular by introducing e-procurement and a more transparent procurement
process. These are very important reforms a country has undertaken in the last
two years. And I think it is because of these reforms we could say that Ukraine
is riding a bicycle in the middle of that hill. But clearly, these reforms are
not enough. The macroeconomic stability is still fragile and the banking sector
also remains quite weak. And clearly, the business environment needs improvement.
In particular, I think the public has not seen real progress in the fight
against corruption. So, clearly more reforms are needed: a judicial reform,
public administration reforms. Through these kind reforms, we can then help the
country to really transform institutions. And these really are the kind of
reforms that can be even harder. You can face a lot more resistance from vested
interests.
Do you believe that the government officials will
finish these reforms?
We have seen continued commitment to reforms. But clearly, continuing
reform is not guaranteed. I am sure you have ridden a bicycle uphill. It is not
easy. Sometimes, there are side winds that can push you off your course. And
sometimes, there will be obstacles on the course. Frankly, I am concerned about
whether the authorities will continue to pedal the bicycle harder. We have seen
in the past in Ukraine that when things got better, reforms slowed down or
stopped completely. So, I am concerned that as the economy stabilizes, and
there is no desperate need for Ukraine to have international financial support,
and obviously with a resistance from the vested interests, there is a risk
that reforms will not move forward. I think that’s something all of us should
work to prevent.
What are the five key steps the Ukrainian authorities need to
take?
Ukraine, given a significant backlog of structural
reforms that have accumulated in the last years, there are many reforms that
are needed. If I have to name five steps, they will be the following. Firstly,
Ukraine has to take measures to safeguard macroeconomic stability.
This means that Ukraine needs to reform its tax system and improve
tax administration. You also need to improve your pension system because
in the medium term, this system represents a huge vulnerability to the
country’s fiscal sustainability. At the moment, pension expenditures in Ukraine
account for about 13.4% of GDP.
Serious and comprehensive measures need to be
taken to improve the pension system. It is also necessary to continue to
stabilize, restructure and recapitalize the banking sector. That’s the first
set of priority reforms related to macroeconomic stability. The
second priority area includes reforms that are needed to resume growth and
create new jobs. The authorities need to create fiscal space for public
investment and improve the efficiency of public investment. These investments
are needed to improve infrastructure, which is important for growth.
Authorities also need to continue improving the business environment in
Ukraine. Here the key is not just about reducing the number of regulations,
inspections and permits. The key here is about protecting property rights. This
is an area where I think the authorities have not done enough in the
last two years.
In addition, the country obviously needs to reform the
state-owned enterprises sector, to reduce the footprint of state-owned
enterprises in the country and promote competition in the economy. We are
talking about privatization, improving corporate governance and further steps
to reduce the influence of oligarchs. This is the second set of
priorities. The third set of priorities is related to basic public service
delivery. Basic services provided for the population need to be improved so
that the people could actually feel that things are changing for the better.
Here, one particular area of reform in the health sector is about health
financing.
In fact, Ukraine actually has a huge overcapacity of health
facilities – it has 40% more beds per capita than the WHO European
average. That’s because the current health financing is tied to input
liked the number of beds. Ukraine needs to move away from that and move
toward having the money follows the patients. This means the money should be
allocated according to the number of patients you have and the type
diseases these patients have.
The second area of service delivery is
really about making social assistance much more targeted to the poor and those
who actually need it. Ukraine still spends a significant amount of public
expenses on social assistance, but this assistance is not really targeted to
the poor.
The third area related to this service delivery is really in the
whole decentralization agenda. We need to make sure that the local authorities
have both the financial means as well as technical and administrative
capacities to deliver the services they are asked to deliver. This is the third
priority set. The fourth area is a judicial reform and strengthening the rule
of law. This сan be absolutely
essential for a functioning market economy and for reducing corruption. This is
an area that has seen very little progress in the last two years and a lot more
efforts are needed. And, the last priority is a public administration reform.
Many of the problems you are facing stand from the weaknesses in the public
institutions.
Again, this is an area where very little progress has been made
in a last two years, and more needs to be done. And cutting across all these
five areas is the key issue of the fight against corruption. You need to fight
corruption by reducing the sources of corruption. And you need to improve the
transparency of the processes so that it’s harder for people to be corrupt. Of
course, you need mechanisms needed to prosecute those who are corrupt and to
punish them. This is an area where the public expects more to be done.
What are your future plans? Maybe you decide to stay
in Ukraine?
My heart will always be with Ukraine. I spent four and a half
years here. I have put my heart and soul in Ukraine, Belarus and Moldova. They
will always have a special place in my heart. I will be moving to my next
assignment. I will be the World Bank’s Country Director for Bangladesh,
Bhutan and Nepal. But I'll be watching Ukraine from afar.
Is it possible that your next rotation in four and a half
years will bring you back to Ukraine?
I would love to.
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