Year 2020 in Review: Ukraine Grapples With Pandemic, Vested Interests, Stalemate With Moscow

As in many other countries, COVID-19 dominated the agenda in Ukraine in 2020. Kyiv locked down domestic trade, services, education, and passenger transportation as well as closed its state borders earlier than did most neighboring countries in March. That swift reaction may explain why, during the first half of 2020, the scale of the pandemic in Ukraine was relatively low. But even after the lockdown was lifted in the summer, the country faced the consequences of a GDP plunge of more than 11 percent in annual terms in the second quarter. As a result, the team of President Volodymyr Zelenskyy shied away from reintroducing tough restrictions when the pandemic peaked in Ukraine in late fall.

The lockdown, the pandemic-induced decline in exports, as well as the exodus of investors bared the endemic weaknesses of Ukraine’s fiscal system, prompting Kyiv to seek international assistance in order to plug a budget hole that was expected to reach 7.5 percent of GDP by the end of 2020. Simultaneously, Zelenskyy began to reshuffle his team. As early as February, he replaced his office head, Andry Bohdan, a well-connected lawyer who had helped him win the presidential election in 2019, with Andry Yermak, a lawyer Zelenskyy had worked with when he was a showman. In March, the legislature dominated by Zelenskyy’s party Servant of the People replaced Oleksy Honcharuk, a young pro-Western reformer, with Denys Shmyhal, an obscure bureaucrat from western Ukraine, in the post of prime minister. It took the Shmyhal cabinet several months to take shape. Several of Shmyhal’s ministers had worked also for Zelenskyy’s predecessors—despite his election promise to recruit only people without links to past administrations.

Zelenskyy’s move to additionally replace the leadership of the National Bank of Ukraine (NBU) alarmed Ukraine’s creditors. Prior to resigning as NBU governor, Yakiv Smoly accused the president of political pressure. It took Smoly’s successor, Kyrylo Shevchenko, a former head of the state-owned Ukrgasbank, many months to persuade the International Monetary Fund (IMF) that his appointment did not mean the NBU’s independence was under threat. Smoly’s resignation and doubts about Zelenskyy’s own independence of vested interests prompted the IMF to freeze its assistance after disbursing the first $2.1-billion tranche of a new loan in June. As a result, Ukraine failed to receive $1.4 billion more from the IMF by the end of 2020, while the European Union and the World Bank also delayed assistance badly needed amidst the coronavirus crisis.

As in similar circumstances in the past, Kyiv had to step up measures against corruption and vested interests in order to change the international creditors’ minds. In March, the Verkhovna Rada (parliament), in an extraordinary night session, lifted the ban on farmland sales, which had benefitted well-connected agricultural oligarchs for two decades. And in June, parliament passed a law on bank resolutions in order to prevent the former owners of Ukraine’s largest bank, Privatbank, from regaining control over it. Privatbank had collapsed and was bailed out by the state in 2016. One of its former owners, billionaire Ihor Kolomoysky, provided media support for Zelenskyy’s election in 2019, and creditors feared that he now expected favors in return. Instead, Zelenskyy ostensibly distanced himself from the oligarch.

Kyiv also moved away from what had been widely interpreted as attempts to weaken the anti-corruption bodies, which the previous Ukrainian president, Petro Poroshenko, had reluctantly set up in 2015–2016—also in order to qualify for Western assistance. Zelenskyy refused to dismiss the embattled National Anti-Corruption Bureau chief Artem Sytnyk, who had been backed by the West. And at the head of state’s request, the parliament moved to circumvent the controversial ruling of the Constitutional Court from October 27 that criminal liability for mistakes committed by officials in their asset declarations was unconstitutional. The ruling had threatened to paralyze Ukraine’s anti-graft system (see EDM, November 19, 2020). Moreover, in December, Zelenskyy suspended Constitutional Court chairperson Oleksandr Tupytsky over suspicions of corruption (Ccu.gov.ua, President.gov.ua, December 29, 2020). Progress was eventually achieved in talks with the IMF, which is expected to resume lending to Kyiv in early 2021; the EU also resumed its lending (Mof.gov.ua, December 18, 2020).

Zelenskyy suffered political setbacks as well last year. Although a new Donbas ceasefire and prisoner-exchange agreements were reached with Moscow, Russian President Vladimir Putin continued to insist on the status quo for both Donbas and Crimea, as he noted in his annual end-of-year press conference (Interfax, December 17, 2020). In the meantime, partly because of the coronavirus, further talks on Donbas in the Normandy format (Ukraine, Russia, France, Germany) were frozen, while the United States expressed relatively little interest in the Ukraine settlement since Donald Trump’s impeachment, which prompted the resignation of US special envoy for Ukraine negotiations Kurt Volker in 2019. There was no progress at home either, as President Zelenskyy continued his predecessors’ course toward transforming Ukraine into a mono-cultural and mono-lingual nation-state, losing sympathizers not only in Donbas but also in other Russophone areas of the country. As a result, popular support for the pro-Moscow Opposition Platform has been growing at Zelenskyy’s expense (RBC, January 4). Candidates linked to Zelenskyy’s Servant of the People party also performed much weaker in the October 2020 local elections than in the parliamentary polls in 2019.

This year may be quieter for Ukraine. The local economy is expected to modestly rebound, with growth of 3–4 percent. No opposition force looks strong enough to challenge Zelenskyy’s domination of local politics. Although his popularity has been sliding, rivals are disunited and far weaker. In the international arena, relations with Russia are likely to remain strained at least as long as Putin remains president. But Zelenskyy hopes that relations with the US will improve when Joseph Biden, who was closely involved in Ukrainian affairs as Vice President under Barack Obama, is himself sworn in as President. Speaking in a recent interview with the New York Times, Zelenskyy said he expected Biden to give a boost to the settlement of the conflict with Russia (President.gov.ua, December 19, 2020).