Four Cabinets Of Ministers After Euromaidan: The Path Of Reforms

During the time that we have been monitoring economic reforms, since December 2014, the four Cabinet of Ministers were changed in Ukraine. They all started with ambitious plans and promises of reforms. But have their priorities coincided in words and deeds? Which Cabinet can be called the most reformist?

The essentials

✓ On average, during the years of independence of Ukraine, the Cabinet of the Ministry has been in power for 487 days. Volodymyr Groysman’s Cabinet has been for the longest time in power — 1232 days. In the second place is the first government of Mykola Azarov — 998 days.

✓ The most used words in government programs:

By this criterion, Shmyhal’s government is more like Groysman’s government, while Honcharuk’s government is different from others.

✓ In 2015, the Cabinet of Ministers under the leadership of A. Yatsenyuk initiated a record amount of reforms. During Groysman’s term, reforms slowed down significantly. The coming to power of the new president and his monomajority, which formed the pro-presidential Cabinet of the Ministers, did not break this trend.

✓ Anti-corruption reforms became a priority for Yatsenyuk’s second government, Groysman and Honcharuk mainly worked on business regulation, and Shmyhal’s government chose the social protection system and the labor market as a priority.

In the beginning was the Word

Twenty Cabinet of Ministers have changed in Ukraine since gaining independence. The twenty-first Cabinet is now in power under the leadership of Denis Shmyhal, who previously has been working in the Cabinet of Oleksiy Honcharuk for a month, as a Deputy Prime Minister – Minister of Community Development and Territories of Ukraine.

The average time of the Cabinet being in power (since the appointment of the Prime Minister) is 487 days. The Cabinet long-liver is the Government of Groysman (2016-2019), which worked for more than 1,200 days, followed by the first government of Mykola Azarov (2010-2012) — a little less than 1,000 days, all others stayed at the helm for less than a thousand days. (Figure 1).

For all good and against all bad

At the beginning of its term, the new Cabinet of Ministers must submit its program of activities to the parliament within a month. If approved by the Verkhovna Rada of Ukraine, the government cannot be dismissed for one year after this.

In December 2014, Arseniy Yatsenyuk’s second government prepared a Program of Activities, some points of which extended up to 2020, and in 2016 it approved the Action Plan for the implementation of this program in 2016. The program was focused on European integration and visa-free travel regime. In the economic field the key areas were energy independence, banking sector reform, anti-corruption, decentralization and public administration reform, deregulation and demonopolization of the economy, as well as new labor legislation, medical reform, new rules for funding science and improving quality of education.

On the day of coming to power, the Groysman’s Government had already published its program. Its priorities were similar to those of Yatsenyuk’s program: harmonization of technical regulation systems with EU requirements and export stimulation, energy independence and housing reform, financial sector reform, anti-corruption reform, decentralization and public administration reform, ensuring balance of the State Budget of Ukraine, land and infrastructure reform, addressness and monetization of social benefits, improvement of the quality of education, including the creation of educational districts, medical reform.

In 2019, Volodymyr Zelensky won the presidential election, and the presidential party “Servant of the People” won 254 mandates in the parliamentary elections. This allowed the party to gain a monomajority in the Verkhovna Rada. On August 29, the President and the pro-presidential parliament formed the Cabinet of Ministers headed by Oleksiy Honcharuk.

The new prime minister used the entire month set by law to present the government’s action plan and approve it in the Verkhovna Rada. The document differed significantly from the previous ones, as it had clearly defined goals, measurable performance indicators and sub-objectives to achieve the goals.

The program focused on expanding economic freedom, attracting investment, achieving high social standards and equal game rules for all. For the next 5 years Honcharuk’s Cabinet has planned to increase GDP by 40%, create 1 million new jobs, attract $50 billion of foreign direct investment, increase population by increasing the birth rate and returning migrant workers. But long-term planning proved unnecessary. Honcharuk’s government lasted only 188 days.

The next government, the one of Denys Shmyhal, prepared its own program, which the Verkhovna Rada was unable to approve after two attempts: there were not enough deputy votes. The next submission of the Program according to the regulations is possible only in a year. By then, Shmyhal’s government had decided to work using an unapproved program.

The program identified the following economic priorities of the government: stimulating the development of small and medium-sized enterprises, employment and government procurement, the “regulatory guillotine”, optimizing the tax burden and administration, restarting the industrial sector, overcoming the energy crisis and developing energy sector, transport and infrastructure reform, development of international trade, digital transformation and development of the IT sector, European integration.

Window of opportunities… has closed?

After the Revolution of Dignity, some “old” politicians withdrew from power or even fled the country (such as Viktor Yanukovych, Mykola Azarov or Andriy Portnov), and the mobilization of citizens reached its peak. The occupation of Crimea and Donbas, economic difficulties and hryvnia’s sharp decline put pressure on the government and encouraged the rapid adoption of reforms to launch a new program with the IMF.

In 2015, when the demand for change was notable and urgent, the value of the Index for Monitoring Reforms reached record levels. A significant part of these reforms were initiated by the Cabinet of Ministers (Graph 2). The graph shows that the greatest progress took place during Yatsenyuk’s government.

Reforms have slowed significantly during the term of the Groysman’s government. The renewal of power and the “turbo regime” in 2019 slightly increased the pace of reforms. However, it is still far from the level of the beginning of 2015. Starting from January 2017, the average trend line did not rise above +5 points for all Cabinet reforms approved within two weeks, while in the first half of 2015 it exceeded 10 points.

Note: Yatsenyuk’s Second Government — 1-33 issues, purple; Groysman’s Government — 34-116 issues, blue; Honcharuk’s Government — 117-130 issues, green; Shmyhal’s Government — 131-140 issues of the Index for Monitoring Reforms, yellow.

Government “box” with tools for reform implementation

The most significant changes in the “rules of the game” are usually provided by laws. At the same time, the procedure for adopting a government bill is quite complicated — it must be approved by all interested ministries and approved by the Cabinet, and before the bill is submitted to the parliament it must be on the website of the relevant ministry for at least a month, so that representatives of the public can submit proposals to it. That is why sometimes bills developed by the government or individual ministries are submitted to the Verkhovna Rada by deputies.

For example, during Oleksiy Honcharuk’s term, several reform laws were submitted to the Verkhovna Rada by deputies and the President, although the government was their initiator and main, if not the only, author. This is a law on transplantation, the abolition of the state monopoly on alcohol production and others. This tactic of submitting bills was probably more effective for this government not only due to the acceleration of the adoption procedure, but also due to the low support by the Rada of law drafts of Honcharuk’s Cabinet of Ministers. As it is not possible to objectively assess the Cabinet’s contribution to such laws, in this article we analyze the bills in which the Cabinet is the official initiator.

In addition to drafting bills, the government can pass resolutions and orders. Some ministries may issue orders, give instructions to subordinate authorities or enterprises, and set up joint initiatives with other authorities. Such documents also have a chance to become reforms, but are, definitely, lower than laws, as bylaws are usually developed to implement reforms.

Yatsenyuk’s government has managed to adopt reforms using various tools. In particular, a significant part of the reforms was carried out by Arseniy Yatsenyuk through laws that were later voted for by the Verkhovna Rada (Graph 4). It’s interesting that, other governments have used this tool much less, even though in 2019-2020 the three main authorities — the president, parliament and government — were in fact representatives of the same political force, and therefore they could have expected a faster passage of bills through the Rada.

In word and deed

Reforms in which areas can each government count as its asset? Second Yatsenyuk’s Cabinet has made the most progress in governmental reforms, including anti-corruption ones, as laws on a number of anti-corruption bodies were adopted at that time. Groysman’s government achieved the most significant success in the development of the business environment, the governments of Honcharuk and Shmyhal were more involved in state finances and governance (Graph 6). If you look deeper at the progress in the sub-areas (Graph 7), you can see that, for example, the government of Oleksiy Honcharuk has made the most significant progress in the field of business regulation (Business Environment area). All other governments’ priority sub-areas belong to their priority areas. You can read more about the classification of reforms by areas in the methodology of the Index for Monitoring Reforms.

Figure 6 shows that although Groysman’s government has been in power twice as long as Yatsenyuk’s government, it has shown significantly less progress in changing the “rules of the game.” This may be due to the fact that the Groysman’s government and the succeeding ones had to deal not only with the development of new regulations, but also with a much more difficult task — the implementation of already adopted changes.

Top-3 reforms from each government

What do we remember about each of the four Cabinets? Let’s consider the most significant reforms that each of them has implemented (Graph 8).

Yatsenyuk’s second Cabinet focused on harmonizing the government procurement process with European legislation. The law, adopted in autumn 2015 (+8.5 points), confirmed the opening of access to information on all government tenders, including the prices offered by the winners of the tenders. Back then, auctions were often held offline, the transition to the electronic system happened one year later, thanks to the law on the introduction of the electronic government procurement system (February 2016, +8.0 points). According to it, from April 1, 2016, the Prozorro system had become mandatory for central authorities and state-owned monopolies, and from August 1 — for all other government customers.

The third biggest reform of Yatsenyuk’s Government was the law on the natural gas market (+6.75 points), which created a competitive environment in this market and enabled Ukraine to join the EU gas market. This law provided, among other things, for non-discriminatory conditions for suppliers to access gas transmission networks and unbundling (separation of the function of transporting natural gas to another company) from Naftogaz.

Groysman’s Cabinet continued to reform the energy market. With his enactment, he equated gas prices for households and district heating with market prices (+6.0 points), thus removing the source of misuse: when prices for industry and households differed, some operators were buying gas from Naftogaz at retail prices and selling to businesses at industrial prices. Another important initiative was the plan to separate “Naftogaz” (+4.75 points), adopted to implement the law. However, the actual division took place only at the end of 2019. The third biggest reform of this Cabinet was the creation of the electricity market (+4.5 points). With this law, Ukraine has implemented the norms of the Third Energy Package of the EU. The regulation of electricity and coal prices has also been abolished: prices will reflect supply and demand in the market.

Honcharuk’s Cabinet focused on the implementation of medical reform. Procurement from international procurement organizations is gradually transferred to the State Enterprise “Medical Procurement of Ukraine” (+4.0 points). This company will be responsible for the entire procurement cycle — from the collection of needs to the delivery of drugs to the hospital. Prior to the transfer to international organizations in 2015, the purchase of drugs for government programs was a significant source of illicit enrichment. The second important reform is the Procedure for Using Public Funds for Medical Guarantee Programs (+2.0 points). It defines what types of assistance and in what way the National Health Service of Ukraine pays for. The Medical Guarantees Program includes primary, outpatient, inpatient, emergency, palliative care, medical rehabilitation and reimbursement of medicines. Funds can be received on a pre-paid basis. Two other significant reforms concerned the selling of bankrupt property through Prozorro. Sales and funding of universities depending on their efficiency and results, rather than the number of students.

Shmyhal’s government has not been in power for so long, so we were able to find only two reforms that scored more than 2 points. The first was a continuation of the medical reform. The government approved the procedure for establishing hospital districts and support hospitals (+2.5 points). District plans will be proposed by regional health departments. If within a month there are no objections from hospitals and local governments, the Cabinet will approve the hospital districts. The second reform concerns the management of troubled assets of state-owned banks (+2.0 points). In particular, now it is allowed to sell through an open auction of debts at a price below the book value: this will allow state-owned banks to get rid of troubled assets and improve their balance sheets.

If we look at the top 12 reforms as of now (perhaps, the main reforms of Shmyhal’s government are still ahead), we will see that four of them relate to energy, three to public procurement, two to health care.

Conclusions

A time to cast away stones and a time to gather stones together.

The Bible, The Book of Ecclesiastes 

After the Revolution of Dignity, a unique window of opportunity opened up for Ukraine: the old elites fled, and a united civil society and international partners have been supporting the reformist fervor of power. Arseniy Yatsenyuk’s Cabinet was able to use the opportunities and initiated a large number of reforms. His successors have not yet been able to surpass the pace of reforms set by Yatsenyuk’s second cabinet. However, the adoption of the regulation is only a small part of the reform. Legislation development and implementation require much more time.

For example, the first pilot projects of medical reform started in 2012, and the design of the land market, adopted by the Verkhovna Rada under the Cabinet of Denis Shmyhal, has been developed by World Bank experts for several years and promoted by the Honcharuk’s Cabinet of Ministers and directly by the former Minister of Economic Development, Trade and Agriculture, Tymofiy Mylovanov. Therefore, to be an effective politician, it is important not only to develop new policies, but also to push the ready developments in a timely manner.

Reform implementations efforts are extremely important, which may lead to a slowdown in reform adoption. However, sometimes, instead of implementing them, governments or other branches of power, reverse those reforms that are particularly successful, that is, those that reduce opportunities to obtain corrupt rents. For example, in December 2019, the Verkhovna Rada passed a law that actually subordinated the State Bureau of Investigation to the President; in July 2020, parliament tried to appoint dubious persons to the anti-corruption prosecutor’s selection commission (thus was created the risk of loosing the visa-free travel), constantly attempts to “adjust” the public procurement reform are being made (such initiatives as “buy Ukrainian” or “localizations”). The latter was done partly due to non-competitive procurement in terms of fights against COVID-19.

Therefore, it is important not only to push new reforms, but also to defend what has already been done. And very often there is no one to perform this task except of the civil society.

How we’ve been counting

Using Reform Index, we compared the performance of the last four Cabinets.

Reform Index is a project that selects regulations that change the “rules of the game” in the economic sphere. It monitors (anti) reforms in five areas: Governance, Public Finance, Monetary System, Business Environment, Energy. You can read more about the Index and sub-areas for evaluation here. 

Of all the regulations for analysis we left only those that were initiated and / or adopted by the Cabinet of Ministers of Ukraine and ministries: enactments, directions and orders of ministries, laws initiated by the Cabinet of Ministers, as well as decrees of individual Ministries. The analysis did not cover almost one month of Arseniy Yatsenyuk’s second government, as Reform Index began monitoring reforms on December 28, 2014 (while Arseniy Yatsenyuk was appointed on November 27, 2014, and Yatsenyuk’s ministers of the second government were appointed on December 2, 2014).

Several laws initiated by a certain Cabinet of Ministers were adopted during the new Cabinet (we counted 9 of such laws), then we added them to the achievement of the initiating Cabinet, while not adding an additional period to its period of activity.

The Second Government of Arseniy Yatsenyuk counts 33 issues of the Index for Monitoring Reforms, Volodymyr Groysman’s — 83 issues, Oleksiy Honcharuk’s — 14 issues, Denys Shmyhal’s — 10 issues.