EU assistance to Ukraine: Audit of the most corrupt country in Europe?

EU assistance to Ukraine: Audit of the most corrupt country in Europe?
EU - Ukraine summit on 24 November, 2016

In a recent audit report, the European Court of Auditors (ECA) concludes that EU assistance to Ukraine has had little impact and that the results achieved so far remain fragile. Szabolcs Fazakas, the ECA member responsible for the report, said even in an interview that “we can only control that the transfer took place.” He was referring to assistance to Ukraine in the form of budget support that was transferred to the national treasury after certain conditions were fulfilled.

During the audited period (2007-2015), EU financial assistance consisted of 1.6 billion euros in grants, half of which was in the form of budget support, and of 3.4 billion euros in macro-financial loans. The auditors assessed whether the EU assistance was proving effective in supporting the reforms in Ukraine. They focused on the areas of public finance management and the fight against corruption, as well as the gas sector.

Over most of the period audited, the unstable political, legislative and administrative context limited the effectiveness of EU assistance, say the auditors. In its reply to the report, the European Commission agrees that the fight against corruption and public financial management are key issues in EU’s dialogue with Ukraine.

Another important area, especially in view of the on-going conflict in eastern Ukraine, is local self-government and decentralization, but this area was outside the scope of the audit or was not supported by the Commission during the audited period.

The audit work was carried out during 2014-2015 and based on interviews with stakeholders and documentary reviews. It was followed by a reporting and fact-clearing period with the Commission during which the findings were updated. The report was published on 7 December, after the EU-Ukraine Summit in November but in time for the European Council on 15 December when the issue of visa liberalization for Ukraine will be on the agenda.

Overall, EU assistance to Ukraine appears to have been partially effective in supporting the transformation of Ukraine into a “well governed state” in the audited areas but in the case of anti-corruption policy the results of effective implementation remain to be seen. Only in 2015 did the Commission and OECD regard Ukraine’s anti-corruption framework as closely aligned with international standards and EU benchmarks.

Anti-corruption policy was included in one of the four blocks in Ukraine’s visa liberalization action plan that was launched in 2010. The plan was divided into two phases – the policy framework and its implementation. According to the Commission’s sixth and final progress report in December 2015, legislative packages had been adopted and an anti-corruption agency had been established but they could “only bring significant end results if fully implemented”. 

At the EU – Ukraine Summit last November, European Council president Donald Tusk mentioned that all EU member states had decided that Ukraine is ready for visa-free travel in “recognition of Ukraine’s achievements in meeting European standards”. Now there are discussions with the Parliament. The intention is apparently to find a solution to the ratification of the EU – Ukraine Association Agreement at the Summit this month.

Asked by The Brussels Times if Ukraine has fulfilled the conditions for visa liberalization, the audit team replied that it is a political decision and not part of ECA’s audit mandate. On the ground, however, the situation does not look bright according to its own report.

The former president of Georgia, Mikheil Saakashvili, was appointed governor of Odessa by the Ukrainian government during May 2015 – November 2016. In an article in The New York Times (16 November), on “why Ukraine is losing the war on corruption”, he writes that he started to overhaul Ukraine’s police force and helped to lead the country’s first anti-corruption agency.

“As the reform movement picked up pace and gained popularity, we suddenly ran into resistance where we least expected it — from people in prominent positions in government back in the capital, Kiev.” He claims “that there was no big clear-out of the cronies. I was left, instead, with the impression that local leaders of the president’s party were working to undermine the anti-corruption efforts.

The auditors refer to information according to which Ukraine has the largest shadow economy in Europe, estimated to around 44 % of GDP. Despite reform efforts, Ukraine is still perceived as the most corrupt country in Europe. Vested interests influence public policymaking. Oligarchic clans, which have developed considerably since the country became independent, continue to exert a dominant influence on Ukraine’s economy, politics and media.

EU-Ukraine cooperation advanced in the wake of the 2014 Maidan events, say the auditors, but the challenges faced by Ukraine still heavily affect the reform process and the risks posed by the former and new oligarchs remain high. The EU responded promptly to the 2014 crisis with a package of €11.2billion over seven years. But this was an emergency solution. The EU allocated and disbursed large amounts of money rapidly and without first agreeing its strategy.

To secure the use of increased EU funding, in June 2014 the Commission envisaged creating a joint, independent body with the Ukrainian authorities to investigate fraud and corruption. By the end of 2015, this joint body had not yet been created.

The auditors did find some tangible and sustainable results in public finance reform and an improved anti-corruption framework. However, public finance management occupied only a modest place in EU-Ukraine dialogue for most of the 2007-2013 period. Until 2014, the Ukrainian government’s limited commitment to the reform process was reflected in incomplete and delayed outcomes.

This seems to have changed since then. The audit team found that at the time of the audit, there was a strong political commitment to public administration reform. However, the team adds that the rotation of mid and senior management jeopardised the reforms supported by EU assistance and the sustainability of results, while low salaries created a potential incentive to corruption.

The team also found that since 2010, the Commission has been more outspoken about the risks posed by the oligarchic system in Ukraine, such as dysfunctional public administration, top-down corruption and public finances used to advance private goals. The Commission assessed the risk of conflicts of interest at all levels of Ukrainian administration as very high, and sought to moderate the risk by means of formal dialogue and budget support suspensions.

“Although we have found that recent results in Ukraine are a reason for optimism, reform results are not yet entirely consolidated,” the audit team tells The Brussels Times.

M. Apelblat

The Brussels Times

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