Ukraine faces a heightened risk of instability in 2018

by James Celer 

Current high levels of corruption and periodic rounds of unrest, linked to poor governance and diminishing support for the local authorities, highlight Ukraine’s persistent structural issues. The ongoing conflict in the east will also continue to generate political tensions that may hinder Kiev’s reform efforts. While Ukraine may not be hitting the front pages, its geopolitical position certainly makes it a country to watch in 2018. This year may prove to be a bellwether moment for the country, as it steers towards presidential and parliamentary elections scheduled in 2019.

On the one hand, Ukraine is engaged in an international donor-backed modernisation programme aimed at tackling corruption, reforming the economy and building the tenets required to establish a system of good governance. On the other hand, resistance to change from a number of interests is contributing to a pushback which threatens to undermine the country’s reform programme which has been steadily implemented under the Poroshenko-led government since the Maidan protests in 2014.

All of this is taking place against the backdrop of an ongoing conflict in the east of the country between pro-Russian separatists and Ukrainian government forces, highlighting a quagmire that the country’s leaders must navigate in 2018.

On the road to recovery

While growth in Ukraine weakened in 2017 amid a trade blockade with the east of the country affecting mining and electricity production, the economy is forecast to continue growing steadily at a rate of around 4% real GDP growth in the medium term, according to the World Bank. This represents a successful turnaround from the economic malaise Ukraine witnessed immediately after the 2014 Maidan protests and beginning of the conflict in eastern regions.

The economic modernisation programme backed by the IMF and other donors continues to act as an effective instrument in steering the country along a roadmap of reforms. Ukraine’s ratification of the Ukraine-EU association agreement in September 2017 – the deal which led to tensions that sparked the Maidan protests in 2014 – is indicative of the progress made in recent years. Some commentators have even suggested it as a modelto follow for the UK post-Brexit, given the agreement’s promise to guarantee economic and institutional ties with the EU while being situated outside of the union.

For Ukraine, the association agreement grants the country greater access to the EU market, making it more attractive to foreign investors than in previous years. And a recently introduced visa liberalisation programme for Ukrainians with biometric passports also allows travel within the EU’s Schengen area for up to 90 days without a visa, further strengthening ties between the EU and Ukraine.

However, while significant progress has been made in modernising the country and aligning it to common European norms and values, the past year has also illuminated a number of inherent challenges which stand in the way of the continued progress desired by reformists in and outside of the country.

Corruption as a threat to stability

Corruption remains a debilitating problem that threatens to undermine the reform progress made in recent years. While the country has made strides in tackling the issue since 2014, for instance through the creation of anti-corruption institutions such as the National Anti-Corruption Bureau and implementation of initiatives to increase transparency, recent events highlight the complex environment and hurdles that reformists must navigate to ensure Ukraine does not backtrack on the progress made in recent years.

In response to a perceived deterioration in the fight against corruption, in December 2017 US Secretary of State Tillerson warned that Ukraine could “lose its soul to corruption”. The comments came in response to news of disruption to a high-level corruption investigation, the arrest of officials from the National Anti-Corruption Bureau of Ukraine (NABU), and the seizure of sensitive NABU files, highlighting the pushback that anti-corruption campaigners and reformists are increasingly facing.

As the country nears elections in 2019, powerful interests from Ukraine’s ‘old’ system are jostling for influence and “seeking retribution against anti-corruption actors”. Unless the government bolsters its anti-corruption drive through increased judicial reform and the establishment of an independent anti-corruption court demanded by the IMF, the cracks from within could widen, threatening Ukraine’s political stability in the medium-term.

According to the results of the latest opinion data collected by Dalia Research, the president’s ratings remain low – hovering at around 20%, while trust in the country’s judicial system decreased from 29% to 22% between November and December 2017. This highlights the population’s growing frustration with the government’s lack of progress in implementing reforms, particularly with regards to ensuring independence in the country’s judicial system. These issues already contributed to a flare-up of protests in 2017.

Though far smaller than the Maidan protests in 2014, low-scale violence erupted between authorities and protesters at a rally near the Parliament building in Kiev in October 2017, prompting localised disruption. Further such rallies are likely to continue this year, with the risk of protests growing larger should the government fail to adhere to its reform mandate.

Risk outlook

A dangerous cocktail of growing public dissatisfaction, a rise in support for populist groups and an increased availability of arms as a result of the conflict in the east risks destabilising the country as it nears elections in 2019. Meanwhile, the ongoing conflict between Ukrainian government forces and pro-Russian separatists in the east will continue to pressure the Kiev government as it deals with balancing the interests of domestic actors and with implementing a reform agenda backed by donors from abroad. A failure to adhere to the reform demands of donors such as the IMF almost certainly presents a risk to the country’s financial stability as this could delay the disbursement of a tranche of loans from a $17.5 billion IMF-funded aid programme.

2018 will, therefore, present the Poroshenko administration with the greatest challenges of his current term. Weathering the storm will require sharp political manoeuvring, adherence to public and donor demands to see through its modernisation programme and balancing relations between Russia on the one hand, and the EU and US on the other. This would be a tall order for any government, but particularly in Poroshenko’s case, it’s not clear that he has the political capital or public support to achieve it.

This article is part of the Risk Pulse series, a collaboration with Dalia Research. It draws on cutting-edge public opinion data collected monthly by Dalia with the specific aim of forecasting political risk.