The Economic Policy Advisory Council to the Ministry of Economy, led by Yuriy Gorodnichenko, a professor in the Department of Economics at the University of California, Berkeley, and featuring the President of the Kyiv School of Economics, Tymofiy Mylovanov, contributes to formulating recommendations on Ukraine’s recovery architecture. This encompasses fiscal and monetary policy, the labour market, and state regulations.

Experts of the Advisory Council have presented a new document proposing a number of steps aimed at accelerating economic growth. The recommendations include additional measures in the areas of production, transportation sphere, the labour market, productivity, and the return of Ukrainian citizens from abroad.

Growth In Production

Public policy in the field of production should take into account regional specifics, focus on the most adaptive sectors of the economy, and work to attract domestic and foreign investment.

• Creating fortified economic clusters (FEC) in the Western and Southwestern Ukraine, shielded by geographical distance and enhanced with modern air-defence systems.
• War risk insurance for companies and investors operating in fortified economic clusters.
• Focusing on agriculture and IT as the most adaptive sectors of the economy working for export.
• Building underground production facilities and utilizing abandoned coal or salt mines for regions near the frontline.

Gross Value Added average growth rates 2016 - 2019, constant prices

Transport System

Integration into the EU transport system and the development of border infrastructure will create additional jobs and promote business development in the adjacent regions on both sides of the border with the EU. 

• Expansion of the 1435mm railroad gauge in Ukraine will facilitate the integration of FEC with European markets, in particular the construction of the Krakow-Lviv railroad (identified as a priority project by the EC study).
• Different approaches to different gauges:  the 1435mm gauge system would focus on higher speed transportation, with the 1520mm system catering for lower-speed transport.
• Building logistics hubs on Ukraine's borders with Poland, Romania, Slovakia, and other countries to facilitate exports.

Labour

The government should facilitate reallocation of the workforce towards areas that are relatively abundant with jobs during the war.

• Reallocation of the workforce to FEC, including the creation of affordable housing programs to facilitate the process.
• Reforming the state employment policy, including changing the role of the Public Employment Service (PES) and closer cooperation with business.
• Developing a procedure to “recuse” some workers (at least temporarily) from military service so that the draft does not undermine the economic capacity of Ukraine.
• Resumption of data collection and publication by the State Statistics Service to ensure evidence-based policies.

Employment rates (ages 15 and above) by macro regions

Productivity 

In a time of war, Ukraine should be able to squeeze more output from available resources.

• Further deregulation of economic activity is likely to free up resources and to direct them to more efficient uses.
• Adoption of a new Labour Code that will take into account the needs of martial law and create new incentives for official employment.
• Simplifying the tax system should reduce compliance costs and the size of the shadow economy.
• Digitalization of government services, including consolidation of public assistance to simplify access for citizens.

Ukrainians Abroad

The key task is to bring people back to Ukraine by offering security, jobs, and housing, as well as an environment where corruption cannot impede human development and opportunity.

• Sharing with Ukraine some of the tax revenues (pension part) generated by refugees in the host countries for the needs of Ukraine.
• Creating additional incentives for the return of citizens, including state job guarantees, support packages in the social sphere, housing policy, etc.
• Creating a credit for pension taxes paid from abroad, analogous to the pension credits for in-country employment, as an additional incentive for return.

 

Read the full report here.

The Kyiv School of Economics (KSE) is a bne IntelliNews media partner and a leading source of economic analysis and information on Ukraine. This content originally appeared on the KSE website.