A Year of Neither Anti-Reform Regulations Nor Breakthroughs: Which Spheres Developed in 2023?

A Year of Neither Anti-Reform Regulations Nor Breakthroughs: Which Spheres Developed in 2023?

Photo: unsplash.com / Eugene lifeinkyiv
15 March 2024
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A survey conducted in April 2023 showed that Ukrainians consider reforms extremely important, although they are insufficiently informed about them. However, respondents named the reduction of corruption and improvement of healthcare, judiciary, and education as the most critical reforms. We summarized the reform results of 2023 and looked at whether they correspond to the expectations of Ukrainians.

Expectations and reality hardly coincided. The authorities put the most effort into improving the business environment, reducing its state regulation, digitization, and enhancing social protection. We saw alignment with public expectations only in the healthcare sector. At the same time, reducing corruption, which Ukrainians consider the most important goal, cannot be achieved by adopting one or several legislative acts. Changes in some other areas, such as digitization of public services, business deregulation, or more transparent management of state property, can be considered progress in this direction.

General Overview of Reforms

Among the legislative acts adopted from January 2 to December 31, 2023, Reform Index experts assessed the 168 most important ones that changed the “rules of the game” in Ukraine. This is slightly more than in 2022, when there were 166 reformative regulations. Over the last three years, the number of reforms has remained approximately at the same level (see Figure 1).

Figure 1. Number of Legal Acts Assessed by Reform Index Experts

Source: Reform Index

However, none of the reforms in 2023 scored more than two points, with only twenty regulations receiving precisely 2 points (see Figure 2). One resolution received zero points from the experts. At the same time, no anti-reform endeavors were recorded last year.

Figure 2. Regulations that Received 2 Points in 2023

Source: Reform Index

The Reform Index is an analytical tool that quantitatively assesses the progress of economic reforms in Ukraine. It is based on experts’ assessment of changes in the regulatory environment that significantly alter the “rules of the game.” Within the framework of the project, a reform is defined as a legislative act that changes the behavior of economic agents, leading to more efficient use of resources. Accordingly, an anti-reform piece of legislation leads to less economic efficiency.

The Reform Index comprises six components: governance, public finances, monetary system, business environment, energy, and human capital. Each component encompasses several reform directions. 

Experts evaluate each legislative act on a scale from “-5” to “+5”. The Reform Index editorial board considers reform progress satisfactory if the Index value exceeds +2.0 points.

The Reform Index does not assess the quality of implementation of adopted legislative acts. Our experts evaluate the potential changes brought about by regulations and how they can impact the behavior and well-being of economic agents. 

In this article, the distribution of legislative acts by spheres differs from the classification based on six directions: we opted for a more “granular” classification for a clearer delineation of reform areas.

Last year, the most progress was achieved in the business environment and business deregulation, digitization, social protection, healthcare, management of state property and public procurement, regulation of banks and financial institutions, anti-corruption and judicial reform, as well as legislation on environmental protection (see Figure 3).

Government efforts to respond to wartime challenges ensured progress in these areas. Thus, changes in the social security system primarily targeted service members and war victims, while improvements in the business environment and reduced state regulation aimed to support the economy. Development in other areas, such as the judicial system, anti-corruption measures, and management of state property, was driven by pressure from international partners, as external financing depends on it. Digitization remains a priority for the government. Let’s further explore the changes that have occurred in these spheres.

Figure 3. Number of Events and Sum of scores by Area

Source: Calculations by the author based on Reform Index data

Business Environment: War Risks Insurance and Eurointegration

In the business environment, authorities sought to create more favorable conditions for entrepreneurs, thus continuing their efforts to reduce state business regulation. They simplified seed certification, the conducting of entrepreneurial activities in providing services to the population, and the managing of multi-apartment buildings. Additionally, people’s deputies eased the operations of small wineries and legalized the production of craft spirits.

Several changes were related to war risks. With the adoption of the relevant law, in addition to international financial organizations (Multilateral Investment Guarantee Agency and the U.S. International Development Finance Corporation), the Ukrainian state Export Credit Agency can now insure investments against war risks. However, for the mechanism to function fully, it is necessary to approve the relevant subordinate acts and provide funding. Furthermore, the Ministry for Restoration will be responsible for compensating the operator or shipowner in case the insurer refuses to make up for losses caused by Russia’s invasion (destruction or loss of the vessel, damage to cargo, expenses related to environmental cleanup, fines for environmental pollution, or harm to the life and health of passengers or crew members). 

The Cabinet of Ministers also regulated the issue of receiving state aid by economic entities to support regional development, medium and small businesses, and the development of local and recreational infrastructure (excluding hotels and amusement parks): enterprises must be economically sustainable, and state aid should have a stimulating effect. Through these regulations, Ukraine implemented provisions of the Association Agreement with the EU regarding the effectiveness of state aid to enterprises.

Other regulations from last year were also aimed at harmonizing national legislation with EU norms. For example, the new Consumer Rights Protection Law extends consumer protection to e-commerce: it envisages the launch of a Unified State Portal for Consumers in e-commerce (“e-Buyer Portal”), updates regulations on providing consumers with information about goods, etc. The law will come into force after the cancellation of martial law. Another Eurointegration law introduced state registration of GMO products and labeling of such products according to European standards (all products must be labeled as “with GMO” or “without GMO” ingredients so that consumers can make an informed choice).

Legislators have implemented EU norms regarding audiovisual advertising. Specifically, advertising containing any discriminatory provisions or inciting hatred, hostility, or cruelty towards individuals or groups is prohibited, as well as advertising from residents of the aggressor country. Alignment with EU practices is also expected in the protection of intellectual property rights.

Eurointegration continued in the field of foreign economic activity and customs affairs. Parliament unified the procedures for declaring military equipment and other goods to EU and NATO standards, which simplifies the import of military goods, medicines, and fuel. Additionally, Parliament introduced provisions of the EU Customs Code into Ukrainian legislation on determining the country of origin of goods, which facilitates the implementation of the free trade agreement, and the government adopted EU approaches to classifying foreign economic activity goods.  

Several regulations pertain to the pharmaceutical business: mobile pharmacy points will operate exclusively in rural areas with no stationary pharmacies and, during martial law, in the frontline territories. In such outlets, it will be possible to obtain medicinal products eligible for reimbursement. At the same time, pharmacies are prohibited from indicating on signs or advertising structures the level of their prices, which may influence consumers’ intention to purchase goods (this concerns words such as “low,” “wholesale,” “social,” etc.) or comparing themselves with competitors.

Digitization and Registries: Development Despite the War

Last year, authorities devoted considerable attention to digitizing government services, making this area one of the most reformed. On the one hand, legislators simplified access for individuals and legal entities to government services, which is crucial in times of war. On the other hand, they continued implementing international practices (e-trust services, legalization of electronic money, legal clarity regarding virtual assets).

Interestingly, the respondents in the survey mentioned at the beginning of this article named digitization the most successful reform in Ukraine. Furthermore, 72% of those surveyed consider the digitization of government services as a measure that helps combat corruption. 

What were the most significant changes we saw in this area?

A series of changes related to electronic signatures, particularly in terms of harmonization with EU legislation, took place. The Cabinet of Ministers allowed the use of qualified electronic signatures from EU countries in Ukraine, and foreign companies will be able to enter the Trusted List – a registry of qualified providers of electronic trust services. The government also initiated Eurointegration laws amending the Tax and Customs Codes of Ukraine to ensure the possibility of using enhanced electronic signatures and abolishing the mandatory use of tokens. Additionally, at the end of last year, the requirement for using a qualified electronic signature was abolished.

Developing the information environment requires improvement of its legal regulation. To this end, Parliament adopted two important regulations last year: a law stating that virtual assets and digital content are objects of civil law and a law extending the application of the Civil Code of Ukraine to relations related to digital content and services. 

Last year, Ukraine legalized electronic money and electronic wallets, allowing them to be used for tax payments and utility services. These changes take into account the continuous development of information and communication technologies, particularly in the financial sector, and aim to take steps towards bringing this sector out of the shadow economy. However, during martial law, the circulation of electronic money remains limited.

To minimize the shadow market of tobacco and alcohol products, a law was introduced that provides for the creation of electronic excise stamps and their circulation system (“eExcise”) from 2026 onwards. These measures are intended to strengthen control over the circulation of tobacco and alcohol products. 

Some of the innovations aim to drive entrepreneurship development through digitization. The government launched the comprehensive service “eEntrepreneur,” which involves reducing paper document circulation. Now, with a single application on the Diia portal, one can obtain a package of services, from registering as an individual entrepreneur to opening a bank account. The range of services is expected to expand in the future.

Throughout the past year, work continued on other information systems as well. To promote the development of the fishing industry through its digitization, the Unified State Electronic Management System for the sector (“eFish“) was launched. Additionally, the Cabinet of Ministers initiated the information and communication system for blood donation (“eBlood“), which automates administrative procedures and processes in the blood donation sphere. The “Diia.Office” section for civil servants has been launched, which digitizes and automates processes related to their official duties and information exchange. Moreover, the Cabinet of Ministers allowed the integration of information resources of state authorities into the Unified Information System of the social sphere. It also introduced a new subsystem (electronic case management), aimed at organizing the provision and accounting of social services and information exchange between specialists involved in providing these services. This change reflects a new philosophy of social support – more targeted and aimed at addressing the problems of each family rather than simply providing financial aid. 

The Cabinet of Ministers’ resolution on using the Registers Platform aims to increase the efficiency of public service delivery. This platform enables government agencies to create new databases and transfer data from outdated registries. State authorities will now be able to independently create requests for information to provide services to the population. Regulating the work of the National Center for Reserving State Information Resources and defining the procedures for creating, storing, accessing, and restoring data from backup copies of national electronic resources are essential steps for the operation of government bodies and their information resources.

Social Protection: Steps towards Supporting Defenders and Those Affected by War

Last year, the social protection sphere saw significant development. Throughout the second year of full-scale invasion, government officials and parliamentarians focused on supporting service members and those affected by the war.

Some regulations addressed the issue of payments to military members. Legislators regulated the issue of financial support and payments to the defense forces of Ukraine and standardized payments for leave. For instance, service members and police officers involved in combat operations may receive additional rewards ranging from UAH 30,000 to 100,000 depending on the location of their service (rear, front lines, or other conditions). Additionally, issues concerning payments to military personnel undergoing treatment, on sick leave, captured, missing in action, or to family members of those killed as a result of injuries sustained in combat were addressed—they too may receive payments of up to UAH 100,000. Moreover, financial support payments are provided to members of the civil defense service who are captured or missing in action (these payments can be received by their family members). If a service member did not use their annual or additional leave during their service, they (or their family members in case of death) may receive monetary compensation.

Last year, lawmakers developed a procedure for civilians who, in the early days of the war, defended Ukraine as part of volunteer battalions to obtain combatant status. To do this, they need to provide a certificate from the commander of the military unit in which the volunteer served or find witnesses to their participation in combat operations. Prior to this decision, civilian volunteers and relatives of fallen defenders who did not sign contracts with the Armed Forces of Ukraine could not expect benefits from the state.

A larger number of individuals will now be eligible for one-time state assistance in case of death or disability. Since last year, these provisions have been extended to volunteers across the entire territory of Ukraine. Previously, assistance was provided only if the volunteer was wounded or killed in the area of ​​the Joint Forces Operation (Donetsk and Luhansk regions). Additionally, these provisions apply to volunteers who became disabled or died as a result of injuries, concussions, or mutilation due to direct participation in defending Ukraine and maintaining the population’s security, as well as during self-defense during martial law.

Lawmakers expanded the circle of individuals eligible for other forms of social support. Defenders of Ukraine, including those wounded and people with disabilities, can now receive vouchers for education. Moreover, those released from captivity and their children are entitled to benefits for vocational, advanced, and higher education.

At the end of last year, the Cabinet of Ministers improved mechanisms for providing prosthetics. Now, the decision regarding the need for prosthetics can be made by a multidisciplinary rehabilitation team in the hospital where the person receives treatment. Previously, this decision was made by special commissions such as the military medical commission, the medical-social expert commission, or the medical-advisory commission. Additionally, there is no longer a need to apply to a special commission to be prescribed wheelchairs with electric drive. Repair of prosthetics, including foreign ones, can now be funded by the state budget. 

Lawmakers have also outlined conditions for compensation for destroyed or damaged housing. Compensation can be received in the form of materials or services for the restoration or reconstruction of housing or in the form of a housing certificate for the purchase of new housing, which must be used within five years from the date of issuance. Additionally, the restoration of all damaged objects must take into account accessibility for people with limited mobility, energy efficiency, and civil defense requirements. All goods purchased with budgetary funds or funds from international financial organizations, as well as public services, must be accessible to people with limited mobility and consider the needs of individuals with cognitive, visual, or hearing impairments, and so on.

In addition to issues related to the war, another significant step forward is the ability of pregnant women to independently determine the start date of their maternity leave. 

Healthcare: Improving Accessibility and Quality of Services

The most significant positive changes to the healthcare sector have been brought about by three regulations. Firstly, the telemedicine law establishes the foundation and regulates the provision of certain medical services remotely, e.g., through online consultations. This is intended to bring medical services closer to the patient. However, this is just the first step, as the Ministry of Health needs to develop the necessary subordinate legislation in this area for telemedicine and telerehabilitation to work. Secondly, the Cabinet of Ministers updated the norms in the field of disaster medicine in accordance with global standards. A key change is the formation of mobile teams of disaster medicine of various types depending on the case’s complexity. Thirdly, there are innovations in the field of rehabilitation licensing. This involves additional qualification requirements for workers in multidisciplinary rehabilitation teams, particularly those providing psychological assistance. Moreover, the possibility of licensing rehabilitation specialists who are not medical workers (physical therapists, ergotherapists, speech therapists, prosthetists, and orthotists) is being created, and licensing of rehabilitation facilities where doctors do not work is being introduced.

Continuing the course towards the autonomy of medical institutions, protecting patients’ rights, and promoting transparency in the activities of medical facilities involves establishing supervisory boards within them. Specifically, it envisages involving the public sector in monitoring the quality of services, ensuring patients’ rights, and seeking ways to develop institutions.

A positive step has been the establishment of extramural military medical commissions based on civilian healthcare facilities, which is expected to expedite the medical examination process for service members or future military personnel and make it more pleasant. Previously, those eligible for military service could only undergo MMCs in military medical institutions. 

Another important innovation for the country in wartime conditions is the ability to import donor blood and its components in case of shortages within the country during emergencies.

Despite the challenges of war, Ukraine continues to combat the HIV/AIDS and tuberculosis epidemics. Last year, the Parliament passed a law introducing modern approaches to preventing, testing, and treating HIV infection, as well as a law on overcoming tuberculosis. Both laws aim to implement modern practices in combating these diseases based on recommendations from the World Health Organization. 

State Property and Public Procurement: Course towards Transparency

This time, we have singled out the area of state property management and public procurement separately due to several vital changes adopted last year. Following the scandal of inflated prices for army products, Parliament passed a law requiring public reporting on defense procurement in the electronic Prozorro system, particularly on contract prices per unit of goods or services that are not state secrets or related to weapons. A Public Council has also been established under the Ministry of Defense to help organize such procurements. According to experts, this law is crucial for efficient procurement during martial law; however, it has several flaws that need to be addressed.

To increase transparency in the management of state property, Ukraine has introduced the sale or leasing of assets of state joint-stock companies exclusively through the electronic trading system Prozorro. Previously, such enterprises independently chose the method of disposing of their assets.

Management of state-owned enterprises is also set to become more efficient and transparent through reforming the procedures for selecting SOE executives and board members and verifying candidates’ business reputation and independence for these positions.

Last year, the government and Parliament took several steps towards the resumption of large-scale privatization: they adopted a law on improving the management structure of the State Property Fund of Ukraine and increasing the efficiency of operations with sanctioned property, as well as defined technical requirements for electronic trading platforms that will have the right to participate in large-scale privatization through Prozorro.Sale.

An important step towards integration with the EU was the approval of the decision of the Ukraine-EU Association Committee and Association Council on mutual access to public procurement markets. This decision allows Ukrainian businesses to participate in public tenders in the EU and vice versa. Currently, this applies only to public procurement by central and local government authorities and public law organizations. Another step in the development of procurement is the designation of request for proposals as the sole instrument for conducting procurements in the Prozorro Market (this is a catalog of similar goods that significantly speeds up procurement processes). 

Banks and Other Financial Institutions: 13 Changes Towards European Practices

Since the onset of the full-scale invasion, Ukraine’s financial system has demonstrated resilience to challenges, and the National Bank has continued to implement strategic changes planned even before the big war.

One of such changes is aligning national legislation with EU practices. The NBU introduced a three-tier regulatory capital structure for banks instead of the two-tier structure (core and additional). Additionally, the central bank updated approaches to risk management in banks and banking groups, taking into account the revised EU legislation, and brought requirements for the remuneration policy of members of management bodies and influential persons of banks in line with European principles of sustainable development.  

Last year, the reform of the non-banking financial services market continued. The new law on credit unions expands the range of their services, improves market entry and exit procedures, and strengthens regulatory supervision and control.

To implement the provisions of previously adopted laws on insurance and financial services, the NBU approved requirements for the activities of insurance intermediaries, defined the scope of information provided to consumers about insurers and insurance products, and began implementing the EU Solvency II Directive regarding insurers’ solvency. In early 2023, the NBU regulated the activities of the Export Credit Agency as a special status insurer, establishing the procedure for its licensing and conditions for conducting insurance activities. Together with the aforementioned law, this will allow the agency to insure investments against war risks.  

Anti-corruption and Judicial Reform: Course towards Integrity

In the direction of judicial reform and combating corruption, only one regulation was adopted last year, which experts recognized as introducing significant changes, namely the law on strengthening the independence of the Specialized Anti-Corruption Prosecutor’s Office. This body will now have the status of a separate legal entity. As a result, it will possess its own property and accounts and have the autonomy to independently determine its structure and staff. Additionally, the law amended the calculation of investigation deadlines (partial cancellation of the “Lozovyi amendments”).

Several regulations pertained to the procedures for selecting prosecutors and judges (their adoption was one of the requirements for commencing negotiations on EU accession). Parliament enhanced the role of international representatives in the selection of judges of the Constitutional Court of Ukraine: the Advisory Group of Experts will consist of six individuals: one appointed by the President, the Verkhovna Rada, the Council of Judges, the Cabinet of Ministers upon the proposal of the Venice Commission, and two delegated by international organizations that have been providing technical assistance to Ukraine in the field of constitutional reform and rule of law for a long time. The powers of the expert group are also strengthened: candidates receiving a negative opinion from the group will be eliminated from the competition.

Some changes affected the judicial system as a whole. The High Council of Justice will approve Unified Criteria for assessing candidates’ integrity and professional ethics for judicial positions. Additionally, Parliament updated the rules for the qualification exam, competitive procedures, and the appointment of candidates. 

Last year, control over declarants was strengthened. The National Agency on Corruption Prevention (NACP) will officially compare the lifestyle of declarants with their declared income and verify where public officials or their family members obtained funds to purchase property before they entered public service.

To reduce corruption risks associated with sanctioned property, the State Property Fund will manage it instead of the Asset Recovery and Management Agency (ARMA), and this property will be disposed of through the Prozorro.Sale system. 

Environmental Protection: Water Quality and Public Awareness

Several significant changes have taken place in the field of environmental protection. The Ministry of Environmental Protection and Natural Resources has approved rules aimed at safeguarding groundwater to prevent contamination and preserve its natural regeneration capacity. Similar impacts are anticipated with the establishment of specific norms for wastewater disposal and treatment.

Several decisions will enable Ukrainians to have more information about the quality of the environment. The first decision regarding creating a state system for monitoring environmental information establishes the legal framework for regulating information about the state of the environment. Additionally, Ukraine has implemented mandatory automated control systems for emissions of pollutants “at the pipe.” However, while such a regulation complies with EU legislation, it will only apply to new equipment, and old equipment will continue to operate without automated control. 

Energy: Movement towards the EU and the Development of “Green” Generation

To enhance the energy system’s resilience and ensure compliance with the conditions for receiving assistance from international partners, ongoing reforms in the energy sector have been initiated. Specifically, the Ministry of Energy has assumed ownership of the corporate rights for the Gas Transmission System Operator of Ukraine (LLC ‘Operator of the GTS’), and the operator has established a supervisory board. Additionally, the provisions of the European Regulation on Wholesale Energy Market Integrity and Transparency (REMIT) have been incorporated into Ukrainian legislation.

Massive attacks by Russia on critical infrastructure objects have increased the necessity for energy source diversification, particularly through the development of green energy. To achieve this, last year, Parliament adopted a law aimed at addressing the accumulated issues in the renewable energy sector, activating and making this market more efficient. This law includes the implementation of a registry of guarantees of origin for electricity generated from renewable sources, which will help avoid additional taxation of Ukrainian exports to the EU. Furthermore, producers of green energy will be able to independently sell it on the market.  

Education and Culture: Expanding the Rights of Residents of Occupied Territories and National Minorities

Several important changes have occurred in the field of education. Firstly, the government has developed a procedure for recognizing education obtained in temporarily occupied territories so that students can continue their studies in educational institutions in Ukraine. To obtain Ukrainian secondary or vocational education documents, citizens must confirm their knowledge by passing certification. Additionally, they are required to undergo mandatory free courses in the Ukrainian language, Ukrainian history, and fundamentals of state and law. Furthermore, Ukraine will not recognize higher education at the master’s level (except for medical, veterinary, and pharmaceutical specialties) and the results of postgraduate studies.

Also, national minorities whose languages belong to the official languages of the EU will be able to receive primary and specialized secondary education in their native language (except for specific subjects). Private higher education institutions will be able to conduct the educational process in EU official languages, provided that the Ukrainian language is studied as a separate discipline. 

A resonant event in the cultural sphere was the adoption of a law prohibiting the import and distribution of publishing products from Russia, Belarus, and the territories not controlled by Ukraine. Another controversial initiative was the Cabinet of Ministers’ proposal to create the Ukrainian Youth Fund, providing budget grants for youth projects. Assessments from our experts ranged from negative to positive, resulting in the resolution receiving zero points. Much depends on implementing this idea since it could serve as both assistance and an obstacle between donors and grant recipients.

Changes also affected the procedure for acquiring Ukrainian citizenship. Now, those willing to become citizens of Ukraine must not only be proficient in the Ukrainian language but also pass an exam on the knowledge of Ukrainian history and the fundamentals of the Constitution.

Conclusions

The past year did not represent a breakthrough in terms of reform activity; none of the regulations scored more than 2 points—the threshold above which significant changes begin, in our opinion. At the same time, there were no anti-reform regulations either. Lawmakers focused on developing the business environment and further digitizing government services, providing social support to Ukraine’s defense forces and individuals affected by war, and fulfilling commitments to international partners to continue receiving assistance and progress in the European integration process.

In December, Ukraine successfully passed the IMF program review and identified 12 new beacons for 2024. These include measures to increase state revenues, relaunch the Economic Security Bureau, establish a new administrative court to replace the Kyiv District Administrative Court, complete the external audit of the National Anti-Corruption Bureau of Ukraine, assess the effectiveness of tax incentives, and more. Therefore, there is much work ahead, and there is no time to delay, as Ukrainian lives are at stake.

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