Development Policy Lending 3 (DPL 3)

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Ukraine has been beset by political volatility over the past three years. While the country has made major strides in advancing democratic development, political and media freedoms, economic reforms, and enforcement of property rights, it has also experienced continuous political volatility. Domestic politics are highly contested, constitutional arrangements on the division of powers between the president and the parliament remain unclear, and the judiciary has become largely politicized and undermined as an independent institution. The operation builds on the achievements of the previous operations in the programmatic series and carries forward the three-pillar agenda, namely: (i) improving the investment climate to sustain growth; (ii) creating fiscal space for growth through strengthened public finances and public sector reforms; and (iii) improving service delivery and social inclusion. As regards to improving the investment climate, this operation supports the enactment of a law on joint stock companies. This law is breakthrough legislation on corporate governance that will encourage transparency in corporate practices, promote Foreign Direct Investment (FDI), and reinvigorate the securities market. It also supports a package of legislative and regulatory measures that lay out initial steps in building a framework to rehabilitate the banking system. This operation also supports executive actions to reduce the quasi-fiscal deficit in the energy sector as well as to improve the business environment for new firm growth by reducing the frequency and costs of business inspections. In terms of fiscal policy and public administration, the Third Development Policy Loan (DPL-III) supports a new procurement framework, which signals the commitment of the government to increased efficiency and transparency in public spending. As in prior operations, the DPL also supports a deficit target for 2007 and 2008. There are also a number of measures supported by the DPL geared to improving tax policy, tax administration, and budgeting practices. In terms of social areas, this operation supports focused achievements in implementing education quality measurements and higher transparency mechanisms in access to higher education.