State regulation in wartime: how the Cabinet of Ministers of Ukraine adapted the economy to martial law conditions
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State regulation in wartime: how the Cabinet of Ministers of Ukraine adapted the economy to martial law conditions

Photo: ua.depositphotos.com / Dmitrydesign
1 July 2022
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During the 100 days of russia’s full-scale war against Ukraine, we collected statutes and regulations of the National Bank, the President, the Verkhovna Rada, the Cabinet of Ministers, and other agencies to analyze how the authorities helped the country recover from the shock of the first days of the war. We looked into how they met defense needs and responded to humanitarian challenges. In the third (and last) of a series of articles, we analyzed the most significant resolutions of Ukraine’s Cabinet of Ministers and other central government bodies adopted during the hundred days of martial law.

From the beginning of the full-scale war, Ukraine’s government had its hands full as a body ensuring the implementation of laws of Ukraine using subordinate legislation to specify the “rules of wartime life.” Therefore, the resolutions adopted by Ukraine’s Cabinet of Ministers during the hundred days of martial law largely fall under two categories: administrative regulation of martial law and regulation of the economy. The main changes had to do with the defense sphere, supporting the army, and economic issues, such as the operation of businesses, taxation, setting up social benefits, humanitarian support, etc. Without waiting for the war to end, the Cabinet of Ministers began documenting war losses and restoring infrastructure and housing stock. Considerable attention was paid to sanctions against russia and belarus.

Overall, during the 100 days of martial law, we counted over 726 statutes and regulations adopted by the government. Of these, about 350 documents related to martial law, with the rest having to do with allocating funding, appointing/dismissing officials, and changes not directly related to the war. We selected the areas where the most changes occurred and analyzed them.

We are keeping track of economic reforms that will have a long-term effect under our Reform Index project.

Read more below.

Administrative regulation of martial law

Legal regime of martial law. On the first day of the full-scale war, the Cabinet of Ministers approved an action plan to ensure the regulation of the martial law regime. The plan included establishing public authorities’ interaction and coordination with the military command, enhancing protection for critical infrastructure facilities, ensuring the operation of bomb shelters, and, if necessary, evacuating the population.

Some changes related to budgetary issues, including local budgeting under martial law. In addition, the government put in place a procedure to fund military administrations. City-level military administrations would be funded by territorial communities’ budgets, while regional and district-level military administrations by the state budget.

Some resolutions had to do with popular resistance and territorial defense. In particular, the government regulated the use of firearms by civilians against the russian occupiers and allowed territorial defense members to use their own hunting weapons and ammunition.

At the beginning of the full-scale war, the Cabinet of Ministers suspended the provision of public services and permits. The main documents used for identification within the country (passport and individual taxpayer identification number) were supplemented by a temporary digital solution, eDocument. Foreign passports expiring during martial law would be valid for another five years, with photos of children and their personal data attached.

The government eased some administrative requirements for drivers, apparently realizing how vital their work is in wartime. The benefits include:

  • extending the validity of the driver’s license for the duration of martial law and another year after its lifting if it expires during martial law;
  • abolishing the medical certificate formerly needed to obtain a driver’s license; shortening driver training period for truck drivers (categories C1 and C); canceling the theory test for drivers re-trained from category B to C1 or C with more than three years driving experience. In addition, driving schools no longer need to coordinate truck driver training programs with the Ministry of Internal Affairs’ service centers;
  • allowing drivers with passenger car licenses to drive trucks;
  • streamlining the process of obtaining permits for the main types of transportation by road by reducing the list of documents, abolishing the requirement to confirm experience, and reducing the application review period to three working days;
  • extending the agreement on organizing transportation of passengers on public busses within the region for the duration of martial law and one year from the date of its lifting.

The Cabinet of Ministers also allowed marriage ceremonies for service members to be conducted in their absence. A statement handed over by a service member to their commander serves as a form of consent to marriage, with the commander verifying the signature and sending it to the civil registry office.

The government allowed the unemployed to register online via the Diia app to receive their due payments. Their application went to the user-selected branch of the employment center, and the money was paid into the card account under the eSupport program.

The Cabinet of Ministers also adopted a resolution to protect state information resources from cyber threats. According to it, state information resources and state registers can be stored in an encrypted form on cloud servers outside of Ukraine, and their backup copies can be created. However, the resolution prohibits storing state information on cloud servers of the aggressor country or in data processing centers in the temporarily occupied territories of Ukraine. The resolution also allows ministries to limit the operations of their registers.

Thus, the enterprise National Information Systems suspended the operation of registers subordinate to the Ministry of Justice, including the State Register of Property Rights to Immovable Property (later, the register partially resumed operation, accessible in some localities). In addition, the Ministry of Justice discontinued access to the automated system of enforcement proceedings and the Unified Register of Private Executors. The government also temporarily abolished the registration and re-registration of cars.

Humanitarian issues. Addressing humanitarian matters was one of the main areas of the government’s work during the hundred days of martial law. The Cabinet of Ministers adopted a number of resolutions regulating evacuations and making border crossings easier for children and representatives of vulnerable population groups. In particular, it:

  • approved a procedure for evacuating children and persons living in specialized institutions from areas of active hostilities;
  • simplified border-crossing rules for orphans and children deprived of parental care. To travel abroad accompanied by authorized persons, they only need a passport and an order from the director of a specialized institution (if they come from a specialized institution) or a decision from a guardianship authority;
  • simplified border-crossing rules for people with disabilities (groups I and II). From now onward, they have the right to travel abroad with a document confirming their disability, a pension certificate, or a certificate of social assistance based on disability. Relatives, guardians, or care institution representatives can accompany such individuals.

Some government regulations have to do with protecting children’s rights during wartime. In particular, they simplified the process of granting the status of a child deprived of parental care if it is impossible to provide documentary confirmation of their parent’s death. They also simplified the process of temporarily placing children without parental care in orphanages or foster families. In addition, the government decided to create a system of accounting for children evacuated within Ukraine’s territory or abroad.

Economy

Providing for the army. At the beginning of the war, the Cabinet of Ministers amended the public procurement procedure to streamline and accelerate the provision of the Ukrainian army with everything it needed. In particular, it allows customers to buy goods directly (without using the ProZorro system) without including these purchases in the annual plan. However, it is necessary to enter information about these purchases into the Prozorro system within twenty days after the end of martial law and within ten days for defense and security-related purchases.

In addition, the government ruled that Ukrzaliznytsia can use its own money or budgetary funds to order goods and services (in particular fuel, medicines, and emergency recovery works) to ensure the continuous operation of railway transport. It can also act as a payer under tripartite contracts, to which military administrations are ordering customers.

In March, the Cabinet of Ministers obliged a number of state-owned enterprises to advance annual dividends based on 2021 results within one day to speed up the flow of funds to the state budget. Thus, Naftogaz of Ukraine was obliged to pay 95% of net profit as dividends (advancing UAH 2.3 billion to the state budget). Ukrhydroenergo advanced 40%, Ukrbud 95%, and Ukrposhta 80%. The standard share of profit deductions for most enterprises initially stood at 50% and was later reduced to 30%.

During martial law, the Cabinet of Ministers also expanded the priority spending list that could be paid for by the general and special funds of the state budget. In particular, the list includes spending on communication and the internet, maintaining civil defense facilities, purchasing medical equipment, etc.

Critical imports. The ban on cross-border currency transfers implemented by the National Bank on the first day of the full-scale russian invasion, inter alia, made it impossible to pay for goods abroad and import them into Ukraine. However, since the country’s economy could not (especially under the shock of the war’s first days) produce all the necessary goods in the required quantity, the authorities had to restore the possibility of paying in foreign currency at least for some goods.

To this end, on February 24, the government approved a list of critical imports, i.e., items for which the state allows cross-border currency payments. The first list of these goods was short and mainly included energy carriers, medicines, personal hygiene products, and food (poultry, eggs, and corn). However, the government began expanding the list as requested by entrepreneurs, and by the end of May, it had been altered 17 times. It currently comprises over a thousand items, including video game consoles, advertising services, watches, etc. Overall, the list already includes most of Ukraine’s pre-war imports,  which raises the question of why it exists.

Notably, the Verkhovna Rada has passed a law canceling tax benefits and enabling the abolishing of critical imports. If signed by the President, it will enter into force on July 1. These changes are necessary to further recover Ukrainian businesses and replenish the budget.

Business regulations. From the war’s first days, the authorities emphasized almost every day that food security was paramount both for Ukraine and the entire world. For its part, the Cabinet of Ministers adopted several resolutions to support Ukraine’s agricultural sector and producers.

Thus, to speed up the import of products from abroad and reduce bureaucracy, the Cabinet of Ministers allowed importers not to translate the labeling of food products (intended for sale and as humanitarian aid) into Ukrainian. Also, food manufacturers may not update the labeling in case of a change in the product composition, but they must indicate information about the presence of allergenic ingredients.

At the same time, the government temporarily limited the export of a number of goods by introducing zero export quotas. The restrictions apply to certain fertilizers, cattle and their meat, rye, oats, buckwheat, millet, sugar, salt, eggs, corn, and oil. However, quotas on exports of some products have already been lifted.

To speed up the import of plant products into Ukraine during martial law, the Cabinet of Ministers facilitated the phytosanitary measures for importing such products. It provided for the automatic extension of licenses to use and sell pesticides and streamlined the registration process for agricultural machinery.

Housing and infrastructure reconstruction. The de-occupation of the Kyiv and Chernihiv regions revealed to the world the catastrophic scale of destruction and war crimes committed by russian troops for over a month since the beginning of the full-scale invasion. Therefore, the authorities faced two main tasks: bringing russia to justice in the international court for the crimes it committed and rebuilding the destroyed cities and villages.

Ukraine’s Cabinet of Ministers did not wait for the war’s end to begin assessing the sustained damage and reconstruction costs, approving the relevant procedure already in March. In addition, the Cabinet of Ministers approved the procedure for submitting information about damaged and destroyed real estate. Any Ukrainian whose real estate was destroyed by the Ruscists can report it via the Diia app. In this case, compensation will be provided automatically, for the message is deemed a valid application.

The government also approved a procedure for examining buildings damaged as a result of russia’s armed aggression to assess the possibility of their further use or decide on their dismantling. On a separate note, the Cabinet of Ministers approved a procedure for determining objects subject to priority inspection and yet another procedure for dismantling such objects. The government also allowed the regions to purchase materials for emergency repair works to eliminate the consequences of the war using budget funds.

To facilitate and speed up reconstruction work, the government shortened the process of obtaining a certificate of the highest category to create architectural objects from one month to five days. It also regulated the development of construction capital repair projects for objects destroyed during the war and made it easier to update building codes.

Social welfare. Supporting Ukrainians in the face of a full-scale war became one of the main tasks for the Cabinet of Ministers. During the 100 days of martial law, the government adopted a number of regulations regarding the provision of social benefits both to Ukrainian civilians who lost their source of income or became displaced and to Ukraine’s defenders in the form of payments, privileges, and treatment and rehabilitation opportunities.

In particular, the following payments are provided to the military:

  • Allowances of UAH 30,000 per month for members of the Armed Forces, the Security Service, the Administration of State Guard, the State Service of Special Communications and Information Protection, the State Service of Special Transport, intelligence officers, national guardsmen, border guards, military prosecutors, privates, and chiefs of the State Emergency Service, heads of the NABU Special Operations Department, and police members. Those participating directly in hostilities receive up to UAH 100,000 per month;
  • allowances for members of the Special Operations Forces (SOF) of the Armed Forces of Ukraine amount to 100% of five times the subsistence minimum (UAH 12,405) established by law on January 1, 2022, and are paid to instructors, employees of SOF centers (except conscripts), and soldiers serving in areas of active hostilities. 80% of said amount (UAH 9,924) is paid to the Ukrainian Armed Forces’ SOF command at special-purpose departments and training centers (except conscripts). 70% of said amount (UAH 8,638) is paid to service members of the SOF centers’ support units and unit heads (except conscripts). Finally, 50% of said amount (6,202 UAH) is paid to other AFU SOF service members (except conscripts).

In addition, the government instructed the Ministry of Defense to provide the military, police members, and rescue workers with free medical services in departmental hospitals. It allowed sending wounded soldiers to medical institutions abroad for treatment and rehabilitation.

The Cabinet of Ministers also provided payments to service members’ families: a one-off payment to the families of Ukraine’s fallen defenders amounts to UAH 15 million. It is to be divided equally among all family members entitled to it according to the law.

Several government decrees concerned the civilians’ social welfare, particularly those who became IDPs due to hostilities and russian occupation. First off, the Cabinet of Ministers defined the circle of persons entitled to receive the status of an internally displaced person (IDP) and a corresponding certificate. These are those who left the Volyn, Dnipropetrovsk, Donetsk, Zhytomyr, Zaporizhzhia, Kyiv, Luhansk, Mykolaiv, Odesa, Sumy, Kharkiv, Kherson, and Chernihiv regions and the city of Kyiv on February 24, 2022.

Citizens in difficult circumstances due to the full-scale war were also entitled to some social payments:

  • UAH 6,500 was paid to employees whose employer was registered as a unified social contribution (USC) payer and had submitted tax reports for the IV quarter of 2021. Residents of the Volyn, Donetsk, Zhytomyr, Zaporizhzhia, Kyiv, Luhansk, Mykolaiv, Odesa, Sumy, Kharkiv, Kherson, and Chernihiv regions and the city of Kyiv could apply for such assistance until March 31;
  • Ukrainians who provide shelter for IDPs can receive UAH 450 each to pay utilities. To do this, they must register their dwelling on a special website and file an application to local self-government bodies;
  • UAH 2.200 in aid from UNICEF could be received every month by families with many children (comprised of three or more children, of which at least one child was under the age of two, or two or more children, of which one or more children had a disability) who became IDPs;
  • UAH 2.200 in aid for IDPs per month under the UN World Food Program;
  • UAH 2.000 can be received by each IDP to pay for accommodation, including utilities, and UAH 3.000 per child or person with a disability;
  • UAH 2,500 from the Red Cross Society can be received by low-income families and families living in the Donetsk, Luhansk, Zaporizhzhia, Zhytomyr, Kyiv, Mykolaiv, Sumy, Kharkiv, Kherson, and Chernihiv regions;
  • employers (except publicly funded entities) employing internally displaced people can receive UAH 6,500 per person as USC compensation (but not for more than two months).

The Cabinet of Ministers provided for other changes in social benefits during wartime. In particular, it automatically continued to provide monetary assistance, privileges, and subsidies. It also ensured centralized financial aid allocation if local social protection authorities could not do it. The government facilitated the monetary compensation process under the Baby Package program and allowed the spending of this money on anything one likes.

Considering the difficult financial situation of many Ukrainians, the Cabinet of Ministers introduced some utility-related benefits. It “frozeelectricity tariffs until October 31 and recommended that the National Commission for State Regulation of Energy and Public Utilities not raise prices for thermal energy during martial law. It also prohibited disconnecting consumers from utility services because of their late payments. It postponed checking gas meters until the end of martial law and another three months after its lifting.

Besides, the government addressed the issue of paying pensions during martial law. Suppose pension recipients change their place of residence during martial law. In that case, they must notify Ukraine’s Pension Fund or the social-security authorities about it to receive the pension payments without opening a bank account. The government ruled later that if Ukrposhta could not deliver pensions and monetary aid to localities of active hostilities, they would be paid in the subsequent periods.

Humanitarian needs. Meeting the needs of defense and citizens became another challenging task for the authorities during wartime because of destroyed logistics and the closure of many businesses. In this situation, international partners came to the rescue. Ukraine received unprecedented support from both the United States and EU countries. In three months alone, the Humanitarian Headquarters created by the President collected 400,000 tons of humanitarian goods: medicines, hygiene products, food, military goods, etc. To ensure a quick and uninterrupted flow of humanitarian aid to Ukraine, the government approved a number of exclusions, namely:

  • Declaring humanitarian aid directly at customs, where customs officers must let such goods through in the shortest time possible. It is forbidden to apply licensing or quotas to goods recognized as humanitarian aid;
  • using the declarative principle of recognizing goods as humanitarian aid, i.e., carriers of products included in the government-approved list of humanitarian assistance must not have an authorized body’s approval for each shipment. It is allowed to import such goods without any restrictions;
  • a simplified procedure for recognizing plates for bulletproof vests, walkie-talkies, drones, binoculars, gunsights, and thermal imagers for non-civilian applications as humanitarian aid and faster customs clearance;
  • importing humanitarian aid based on a declaration drawn up in paper or digital form at customs. Later, the Cabinet of Ministers enhanced the process of filling out humanitarian aid declarations by bringing the terms in line with international practices and allowing the use of QR, digital, and bar codes in the paper form to speed up customs procedures;
  • allowing military administrations to conclude electronic contracts with Ukrzaliznytsia to transport humanitarian goods;
  • releasing humanitarian aid from reporting on receipt and use.

The government made Ukrposhta responsible for delivering remittances, humanitarian aid, and medicines during martial law. In addition, the Cabinet of Ministers obliged the state company to transport the property of enterprises free of charge under relocation programs. At the same time, the Cabinet of Ministers exempted Ukrposhta from the mandatory transfer of vehicles to the Armed Forces during mobilization and obliged gas stations to refuel Ukrposhta vehicles, skipping the queue.

The Cabinet of Ministers organized the free distribution of humanitarian kits and long-shelf-life foods for people in areas of active hostilities. Preparing such kits from available humanitarian aid items is entrusted to military administrations.

Fighting russia’s influence and sanctions. One of the Cabinet of Ministers’ most important decisions in this direction was a complete ban on importing goods from russia into Ukraine. According to the Ministry of Economy, this measure will reduce russia’s foreign exchange earnings by $6 billion every year, thus diminishing its ability to finance the war.

Although ties with russia should have been severed at least since its annexation of Crimea and aggression in eastern Ukraine, the process of terminating a number of international agreements continues today. We counted eight agreements with russia and belarus denounced by the government during martial law. These are agreements in the areas of education and science; standardization, metrology, and certification; technology (including rocket engineering); fisheries; and finance.

The legislative changes adopted by Ukraine’s Cabinet of Ministers were aimed at the country’s rapid adaptation to living under the conditions of a full-scale war and supporting businesses and citizens. Some of these changes made sense at the beginning of the war but lost their meaning in the process of adapting the economy to new conditions or may even be harmful. For instance, critical imports were needed at the beginning of the war, but the more businesses adapted to wartime conditions, the greater the need to expand the list. Today, it contains about 90% of all commodity categories of pre-war imports, which raises the question of why it exists. However, it is only possible to discontinue the critical import list after entry into force of the law on abolishing tax breaks for imports.

Returning (at least partially) the tax system to the February 24 status quo is also essential since it will contribute to increasing budget revenue. As a reminder, tax revenue accounted for 88% of state budget revenue at the end of 2021. In May, the state budget revenue exceeded spending by only 30%, which led to the first massive delays in budget payments, even for protected expenditure items.

In addition to taxes, the government must also review the social benefits system to make it more selective to provide funds only to vulnerable parts of the population or citizens in challenging circumstances.

The government must focus on other vital issues: restoring destroyed infrastructure and getting the Ukrainian refugees back home.

Authors

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