Ukraine achieves low overall compliance with international standards and codes, with a score of 31.67 out of 100 in our Standards Compliance Index. Ukraine is close to full compliance with international standards in the areas of data dissemination. Transparency in monetary and fiscal policies has a strong basis in law, and Ukraine is working toward removing gaps in implementation. It has also made considerable progress in strengthening its anti-money laundering regime. Ukraine has also enacted the legislation and regulations that are in compliance with international standards in auditing and securities regulation. However, apart from these positive developments, Ukraine lags far behind international standards in most other areas, with three standards assessed as "no compliance" and the remaining three with insufficient information to make an assessment.

Macroeconomic Policy and Data Transparency

Ukraine became a subscriber to the International Monetary Fund's (IMF) Special Data Dissemination Standard (SDDS) in January 2003, at which time it first posted metadata on the Dissemination Standards Bulletin Board and met SDDS specifications. Although the IMF's 2003 Report on the Observance of Standards and Codes noted a number of problems in Ukraine's data dissemination standards, by the time of the IMF's 2006 Article IV Consultation (published in 2007) Ukraine's data standards had been significantly improved. According to the 2006 Article IV report Ukraine's data are, for the most part, methodologically sound, accurate, and reliable. Problems remain, however, in the reporting of balance of payment data and national accounts, where work is still needed to resolve discrepancies in data categorization and definition; and in the timeliness of reporting national accounts data and data on the analytical accounts of both the banking sector and the central bank. More »

In 2003, the International Monetary Fund's (IMF) Financial Sector Stability Assessment concluded that the monetary policy framework of the National Bank of Ukraine (NBU) is largely transparent. The revised Law On the National Bank of Ukraine of 1999 enhanced the legal framework for monetary policy formulation and implementation. Nonetheless, the IMF identified a number of critical areas that remained in which further improvements would be highly desirable. There was need to guarantee the political autonomy of the NBU in its implementation of monetary policy; the NBU needed to work with the government in clarifying the relationship between them; the rationale for monetary policy decisions. Also, the overall framework of monetary policy could also be made more analytical and more thoroughly explained. In 2005, the IMF again emphasized the need for the NBU (and its management) to establish its independence and improve the transparency of its monetary policy framework and operations - such as clarity of objectives, use of instruments, and communications to the public about policy actions. More »

In a 2004 Report on the Observance of Standards and Codes, the International Monetary Fund (IMF) concluded that Ukraine's recent improvements in fiscal policy-making had the effect of increasing transparency. Improvements included the 2001 enactment of the Budget Code and the institution of a treasury system that has increased the timeliness, reliability, and coverage of fiscal reporting. Computerization of state procurement has resulted in a more modern and transparent process, as well. Ukraine subscribed to the IMF's Special Data Dissemination Standard (SDDS) and began posting metadata on the SDDS website in January 2003, at which time it complied with SDDS specifications. In 2006, the IMF's Article IV Consultation suggested that Ukraine authorities have begun to address remaining problems in the area of fiscal transparency, much more needs to be done. More »

Institutional and market infrastructure

According to results of a survey conducted by R. Harmer and N. Cooper for the European Bank for Reconstruction and Development (EBRD) in 2003 (updated in 2004), Ukraine's insolvency legislation was judged to be largely inadequate with respect to compliance with international standards. The EBRD assessment only evaluated the law's content, and made no judgment as to its practical effectiveness or the adequacy of the institutions charged with applying the law. The International Monetary Fund (IMF) conducted a Financial Sector Stability Assessment in 2003 that found some minor improvements in Ukraine's overall insolvency regime, but still deemed it inadequate, both in legislation and in practical application. This finding was repeated in a subsequent IMF report issued in 2005 and the 2007 EBRD assessment, even though the 2003 Mortgage Law was considered to be an important first step forward. More »

PricewaterhouseCoopers (PwC), in its 2007 Doing Business Guide, states that all entities in Ukraine are required to prepare financial statements in accordance with National Accounting Standards (NASs), which are based on International Financial Reporting Standards (IFRSs). Even though the 2000 Law on Accounting and Financial Reporting stipulates that NASs should not contradict IFRSs, the 31 NASs effective in 2007 differ from IFRSs in practice. With respect to Accounting for Government Grants and Disclosure of Government Assistance, Interim Financial Reporting, Investment Property, and Share-Based Payments, no corresponding NAS has been adopted. Moreover, the existing NASs provide less interpretative guidance, explanations and illustrations than IFRSs, which, according to PwC, ultimately impedes the comparability and quality of financial statements in Ukraine. In its 2005 Investment Guide, KPMG reported that companies listed on the Ukrainian Stock Exchange are required to apply IFRSs, beginning in 2003. More »

According to the European Bank for Reconstruction and Development (EBRD) 2004 Corporate Governance Sector Assessment Project, corporate governance legislation in Ukraine is in very low compliance with the Organization for Economic Cooperation and Development (OECD) Principles of Corporate Governance. In particular, disclosure rules are inadequate, the duties of boards of directors are unclear, and provisions concerning shareholders rights are insufficient. As stated in the Financial Sector Stability Assessment published by the International Monetary Fund in 2003, the financial and ownership structure of many banks and enterprises is not always transparent, and accounting standards appear to be far from international best practices. However, according to the Corporate Governance in Eurasia report published by the OECD in 2004, efforts have been made to develop a corporate governance framework in Ukraine. To date, nevertheless, the basic legal and institutional framework of corporate governance in Ukraine still requires significant improvements. More »

According to the 2007 Ukrainian Federation of Professional Accountants and Auditors (UFPAA) self-assessment, audits of all entities have to be conducted in accordance with International Standards on Auditing (ISAs). The most recent translation of ISAs was finalized in 2006. PricewaterhouseCoopers, in its 2007 Doing Business Guide, states that the Law on Auditing is the primary source for auditing regulations in the Ukraine. Other laws, such as the Law on Financial Services and State Regulation of Financial Services Markets, the Law on Banks and Banking Activities, the Law on Securities and Stock Market, and the Law on Insurance, set additional requirements for audits and auditors within the respective industry. The 2007 UFPAA assessment further explains that the Ukrainian Chamber of Auditors (UCA) is the auditing standard-setter in Ukraine. The UCA is also responsible for the certification of auditors, the approval of training programs, and the maintenance of a register of individual auditors and auditing firms. More »

According to a 2003 International Monetary Fund (IMF) assessment, which is based on the old (2002) methodology, Ukraine's legal framework for anti-money laundering (AML) and combating the financing of terrorism (CFT) is largely in place. Nonetheless, there is little information publicly available explicitly addressing Ukraine's compliance with the new (2004) FATF methodology on AML/CFT requirements. The U.S. Department of State (DoS), in a 2007 report, notes that the Law on Prevention and Counteraction of the Legalization (Laundering) of the Proceeds from Crime (referred to as the AML Law) and subsequent sets of amendments have helped improve Ukraine's AML/CFT measures. The report further adds that the Government of Ukraine (GoU) has made numerous efforts in recent years to pass amendments to the AML Law so as to bring the legal framework into compliance with the FATF's Forty plus Nine Recommendations and Special Recommendations. However, according to the 2007 U.S. DoS report, the Ukrainian parliament has always been a stumbling block to the GoU's efforts in this regard and, in spite of Ukraine's comprehensive AML/CFT regime, proper implementation of these rules has yet to be established. More »

According to the National Bank of Ukraine (NBU) website, the national system of interbank settlements is the System of Electronic Payments (SEP). This is an automated, quasi-real-time, gross settlement system, but there is insufficient information publicly available as to the SEP's compliance with the Core Principles for Systemically Important Payment Systems. However, in 2003 the International Monetary Fund (IMF) conducted a Financial System Stability Assessment (FSSA) of the Electronic Interbank Payment System (EIPS) which, at the time, was considered the only systemically important payment system in Ukraine. The IMF observed the EIPS to be generally secure, reliable, and efficient. The HSBC in its 2007 publication on payments and cash management in Ukraine states that, in addition to SEP, the NBU operates a system for high-priority, high value, and/or urgent, transfers, called the System of Instantaneous Transfers (SIT). More »

Financial Regulation and Supervision

According to the Financial Sector Stability Assessment (FSSA) published by the International Monetary Fund (IMF) in 2003, the legal framework for the banking system in Ukraine is broadly adequate. Nonetheless, there is little information publicly available explicitly addressing Ukraine's compliance with the Basel Core Principles (BCPs) for Effective Banking Supervision. Regulations on capital adequacy, provisioning, and risk management by banks are also satisfactory in structural terms. However, quantitative dimensions of risk are omitted, and deficiencies remain in areas such as provisions for effective and transparent governance. According to the 2006 Annual Report published by the National Bank of Ukraine (NBU) in 2007, since the 2003 IMF assessment there has been amendments to the normative and legal base of banking supervision in Ukraine, and changes in the level of its practical implementation. Furthermore, the NBU report also indicates that banking supervision has substantially met the Basel Committee requirements. More »

According to the 2005 European Bank for Reconstruction and Development (EBRD) securities markets legislation assessment, which benchmarked the Ukrainian legal framework against the International Organization of Securities Commissions (IOSCO) Objectives and Principles of Securities Regulation, Ukrainian securities market legislation was found to be in medium, almost high compliance with international standards. In its 2007 assessment, the EBRD explained that Ukraine had enacted a new Law on Securities and the Stock Market in May 2006, which replaced the former 1991 act and eliminated several gaps and contradictions in the Civil and Commercial Codes with respect to securities and stock market regulation. The Ukrainian securities market regulator is the State Commission on Securities and the Stock Market (SSMSC). The SSMSC licenses and regulates market participants, and registers securities issues of domestic and foreign issuers. The Commission, which is a member of the IOSCO, is financed by the state budget. More »

The insurance market in Ukraine is still underdeveloped, according to Michael Noel et al. in their 2006 World Bank working paper. However, it is the fastest growing segment of the financial services market, and among the principal participants in the Ukrainian securities market. As noted in the European Bank for Reconstruction and Development (EBRD) 2005 Strategy report, although the insurance sector does not represent a systemic source of vulnerability for the financial system, its sound development is important to the stability of the financial system in the long term. However, important gaps and inconsistencies remain in the legal framework, and the EBRD, in its 2005 report, recommends amending the Law on Insurance to bring it in line with international standards and practice. According to Noel et al., the responsibility for insurance supervision was transferred on April 4, 2003 from the State Committee for Insurance Supervision and a special Department of Insurance Supervision at the Ministry of Finance to the State Commission for the Regulation of Financial Services Markets (State Commission). Although the State Commission has made substantial progress in developing its regulatory capacity, it still lacks financial autonomy and enforcement measures. Hence, Noel et al. urge the State Commission to increase its investigation powers, and ensure compliance of insurance companies with capital adequacy requirements. Noel et al. also advise the government of Ukraine to reform the legal and regulatory framework, as well as strengthen enforcement measures, in order to bring them in line with international standards and practices, and increase transparency and protection of insurance policy holders' rights. However, there is insufficient information publicly available as to Ukraine's compliance with the Insurance Core Principles promulgated by the International Association of Insurance Supervisors in 2003. More »

Legend:

Credit Ratings

Moody's B1/Rating Under Review (RUR+)

Fitch BB-/Positive

Standard & Poor's BB/Negative

Macroeconomic Data

2007 GDP (Current Prices): 140.5 billion USD (IMF)

2007 GDP (Per Capita): 3,046 USD (IMF)

2008 GDP (Growth Forecast): 5.5% (IMF)

2008 Inflation (CPI): 21.9% (IMF)

2007 Unemployment: 2.5% (CIA)

2006 Foreign Direct Investment

FDI (Inward): 5.2 billion USD (UNCTAD)

FDI (Outward): -0.1 billion USD (UNCTAD)

2006 Official Development Assistance

ODA (Received): 484 million USD (OECD)

ODA (Disbursed): N/A million USD (OECD)