WHERE THE MONEY

COME FROM

Kyiv National Economic University named after Vadym Hetman

COLLOQUIUM

6 November, 2014

Dr., Prof. Leonid Kistersky

AGENDA

Introduction

1. Sources of funding for Ukrainian economy

2. Types of donors and their activities in Ukraine

3. How to attract external resources

Conclusions and recommendations2

1. SOURCES OF FUNDING FOR

UKRAINIAN ECONOMY:

3

Investment

Credit

International Technical Assistance

INVESTMENT

in finance, an investment is a monetary

asset purchased with the idea that the

asset will provide income in the future

or be sold at a higher price;

the asset belongs to an investor (direct,

portfolio, venture)

CREDIT

money that a bank or business will

allow , somebody to use at a certain

price, conditions and then pay back in

the future;

the money allocated temporarily belong

to a borrower

International Technical

Assistance (ITA)

a grant-based tool for transferring ideas,

knowledge, practices, technologies or skills

to foster economic development;

the purposes of technical assistance are

classified as follows: (a) Policy development,

(b) Institutional development, (c) Capacity

building, and (d) Project or programme

support

6

DONORS

international organizations (IO)

international financial institutions

(IFIs)

individual countries

provide soft-term loans and

international technical assistance

2. TYPES OF DONORS AND THEIR

ACTIVITIES IN UKRAINE

European Union

UN

World Bank

IMF

European Bank for Reconstruction and Development

European Investment Bank

Other Donors

TYPES OF DONORS

Multilateral:

EU, UN, ILO, WB, EBRD and others

Most foreign resources come to Ukraine through multilateral channels from international organisations that deliver significant financial assistance, credits on soft terms and ensure financing of the technical assistance programmes.

TYPES OF DONORS (2)

Bilateral:

Individual countries through their Embassies or International development Agencies (IDAs):

USAID, SIDA, CIDA, GIZ

Bilateral donors are governments of the countries delivering ITA through their embassies in recipient countries or through specifically created Funds to administer the earmarked resources.

TYPES OF ASSISTANCE

international technical assistance (ITA) –

EU, USAID, SIDA and others

soft-term loans – WB, IMF and others

ITA

Since 1992, the overall ITA amount granted

to Ukraine by individual donor countries

and international organisations (IO)

accounted for an amount of some

$ 7,5 billion.

ITA management in Ukraine

areas of responsibility for ITA programming,

management and reporting in Ukraine are

shared amongst different government

agencies:

The Ministry for Economic Development and

Trade of Ukraine

The National Agency of Ukraine for Civil

Service

The Ministry of Finance of Ukraine

Ministry for Economic Development

and Trade

plays a leading role in this system – it is

responsible for programming, coordination

and monitoring of the process.

National Agency of Ukraine for Civil

Service

is a key public authority responsible for

implementing certain individual EU

programmes:

TAIEX, Twinning

Ministry of Finance

is in charge of ensuring the ITA receipt in

the public finance management (PFM) area,

consistency of international financial

assistance with the State budget as well as

for attraction of IO resources.

ITA framework

The Paris Declaration principles - a recipient

country itself should define the strategic

development priorities and donor support areas.

The international surveys of institutional capacity

for effective performance of the ITA coordination

functions – Paris Declaration (2005) and Accra

Agenda for Action (2008) indicated a low level of

effectiveness and capacity by the responsible

Ukrainian authorities for ITA coordination.

European Union (EU)

European Neighbourhood and Partnership

Instrument (ENPI):

period 2007-2013

budget - EUR 11 billion 181 million

95% to be allocated to the country and multi-

country programmes

5% - to the cross-border cooperation

programmes.

18

ENPI

designed to address the agenda related to sustainable development and approximation of neighbour countries to EU standards;

to support the Association Agreements (AA) as well as other existing and future agreements;

encourage partner countries’ efforts aimed at promoting good governance and ensuring sustainable social and economic development. Ukraine is among the ENPI partner countries.

ENPI - Ukraine

Grant resources are credited to the budget of

the recipient country, if previous goals were

achieved.

implementation of Twinning Programme

through the Institution Building and

Partnership Programme (ІВРР) and TAIEX.

ENPI – Ukraine (2)

The ІВРР programme provided for support

under two areas: "Support to Civil Society

and Local Initiatives" and “Key

Institutions”.

TAIEX Programme– Technical Assistance

Information Exchange Office – was

introduced to strengthen the administrative

capacity of the Ukrainian public authorities.

BILATERAL DONORS

USAID - for USA, it is the only ITA delivery

channel to recipient countries.

Many EU Member-States also provide TA

on a bilateral basis on top of their main

efforts through multilateral channels,

however, they are much less than their main

input to multilateral cooperation.

BILATERAL DONORS (2)

The biggest Ukraine’s bilateral donors are:

USA, Canada, Great Britain, Germany, the

Netherlands, Sweden, Japan;

providing support through the special

international development agencies (IDA):

USAID, Swedish IDA (SIDA), and Canadian

IDA (CIDA).

INTERNATIONAL FINANCIAL

INSTITUTIONS

providing significant financial assistance and

financing ITA.

the ITA share in their resources:

not more than 10%;

ITA component, as a rule, is financed through the

grants provided by the governments of individual

developed countries for administrative purposes.

The largest external funding sources for

Ukraine are the World Bank Group and IMF.

The World Bank Group (WB)

comprises institutions providing both financial and

technical assistance to Ukraine:

International Bank for Reconstruction and

Development (IBRD),

International Finance Corporation (IFC),

International Development Association (IDA),

Multilateral Investment Guarantee Agency

(MIGA).

World Bank activity in Ukraine

The major goal:

to assist the Government in transition to market economy, in particular in recovery of sustainable economic growth and improvement of the living standard in the country.

The World Bank cooperates with the Ukrainian governmental structures, non-governmental organisations (NGOs), multilateral institutions and donors.

For project preparation the World Bank draws the grant resources from many sources

WB Country Assistance Strategy

(WB CAS)

Country assistance strategy for Ukraine for 2012-

2016;

Estimated programme funding - $ 970 mln.

Provides loans only for productive purposes, to

public institutions or under the state guarantees:

Maturity period – up to 30 years

Grace period – up to 7,5 years

Average interest rate – around 4% (LIBOR+

Spread + commission fee)

International Monetary Fund (IMF)

Ukraine’s biggest creditor

cooperating at the governmental level

providing finances for:

covering the deficit of balance of payments;

establishing the market economy principles.

IMF provides ITA under three areas:

support of fiscal and currency policies;

drafting and revision of economic and

financial legislation, relevant rules and

procedures;

capacity building of central banks,

treasuries, tax and customs services

IMF lends: only to public institutions - like Central Bank,

Treasury, Stabilization funds.

Access to credit is limited to certain conditions.

Maturity period –up to 5 years;

Grace period – up to 3 years;

Average interest rate – around 6 %

(+ 0,5 % commission fee).

Cooperation stages with Ukraine:

1994 - 1995 $ 760 mln.

1995 – 1998 $ 1,9 bln.

1998 – 2002 $ 2,6 bln.

2002 – 2008 $ 600 mln.

2008 – 2013 $ 14,5 bln.

European Bank for Reconstruction

and Development (EBRD)

works in two ways:

providing soft loans guaranteed by the

government

private enterprise lending on commercial terms.

Ukraine ratio is 30 and 70%;

Short to long-term maturities, from 5 to 15 years;

Project-specific grace periods may be

incorporated;

Average interest rate – LIBOR (0,6) + 5-6%.

EBRD in Ukraine

During 1993-2013 - 337 projects worth 8.6 billion Euro were funded.

Sectoral structure of the Bank's loan portfolio in the public sector:

Transport infrastructure - 50%

Energy sector - 39%

Financial sector - 8%

Communication - 2%

Development of municipalities - 1%

In 2011 the EBRD Board of Directors approved the Bank’s Strategy for Ukraine for 2011-2014 which envisaged about Euro 1 Bln. annually for development projects. To the above sectoral structure agriculture has been added.

European Investment Bank (EIB)

is the European Union's nonprofit long-term lending institution established in 1958 under the Treaty of Rome. Basically operates in EU region

Priority sectors:

SME

Construction

Transportation

Energy

Industrial projects

EIB Cooperation

The EIB funds projects with a minimum value of 25 mln. Euro, as part of the loan - up to 25% of project cost: Maturity period – up to 25 years

Grace period – 2-6 years

Average interest rate – EURIBOR + commission/administrative fee + payment for economic/political risks

The EIB cooperates with some 120 countries with the EU share of 80% of the Bank’s resources

Back in 2007 the EIB allocated for the 7 CIS countries (including Ukraine) Euro 3,7 bln. on a competitive terms till 2013;

Ukraine accounted for some Euro 1,3 bln. directed to energy and transportation sectors.

European Investment Fund (EIF)

founded in 1994 to specialize in SME and

venture capital investment.

The EIB is the majority shareholder

supported by the European Commission

and private banks.

Black Sea Trade and Development

Bank (BSTDB)

multilateral development bank based around the 11 countries is a regional economic organization.

supports economic development and regional cooperation by providing trade and project financing, guarantees, and equity for development projects.

supports both public and private enterprises in its member countries and does not attach political conditionality to its financing.

Ukraine’s share in the authorized capital – 13,5% (around Euro 52 mln.)

Credits received by Ukraine – Euro 313 mln.

Ratio of the indicators – 1/6

3. HOW TO ATTRACT DONOR

RESOURCES

Project framework

Targeted use

Application forms

Limited budget

Result oriented

Impact/ influence on economy sector

SHORTER PATH TO FUNDING

Project Cycle Management (PCM):

is a term used to describe the management

activities and decision-making procedures

used during the life-cycle of a project

(including key tasks, roles and

responsibilities, key documents and decision

options).

Project Cycle Management

PMC highlights three main

principles:

1. Decision making criteria and procedures are

defined at each phase (including key information

requirements and quality assessment criteria);

2. The phases in the cycle are progressive – each

phase should be completed for the next to be

tackled with success; and

3. New programming and project identification

draws on the results of monitoring and

evaluation as part of a structured process of

feedback and institutional learning.

PCM principles help to ensure that:

benefits generated by projects are likely to

be sustainable;

to support the achievement of these aims,

PCM requires the active participation of key

stakeholders and aims to promote local

ownership.

PRACTICAL EXERCISE

Choose an appropriate donor source:

A. EU Technical Assistance Project

B. Bilateral donor

C. Soft-term Bank Credit (WB, EBRD….)

D. I M F Credit

E. Investment

N Type of Assistance Source

1 1.5 year project to support implementing the Association

Agreement requirements in Environment legislation

2 Build new high tech measurement instruments enterprise in

Bila Tserkva

3 Providing small financial support to Civil Society projects

4 1 Expert for 6months on developing EU financial control

regulations in the Ministry of Finance

5 2 training courses of 1 week each in Ukraine on Internal

Audit for EU Funds

6 2 mln. project to reconstruct highway junction construction

on Odeska square

7 1 beuro for balance of payment support

8 1 meuro project to develop training program and staff

teaching capacity in English in Kyiv National Economic

University named after Vadym Hetman

9 3 mln. project for road reconstruction Kyiv – Brovary

Key to exercise:N Type of Assistance Source

1 1.5 year project to support implementing the Association Agreement

requirements in Environment legislation

A

2 Build new high tech measurement instruments enterprise in Bila Tserkva E

3 Providing small financial support to Civil Society projects B

4 1 Expert for 6months on developing EU financial control regulations in the

Ministry of Finance

A

5 2 training courses of 1 week each in Ukraine on Internal Audit for EU

Funds

A,B

6 2 mln. project to reconstruct highway junction construction on Odeska

square

C

7 1 beuro for balance of payment support D

8 1 meuro project to develop training program and staff teaching capacity in

English in Kyiv National Economic University named after Vadym

Hetman

A,B

9 3 mln. project for road reconstruction Kyiv – Brovary C

Thanks a lot

and

good luck!