Turning Funds into Reforms: Latvia’s Model for Ukraine’s European Journey

Preparation and capacity building of state authorities to attract and work with EU funds, including available opportunities, audits, transparency, and accountability. Principles of building multilateral agreements and their implementation.

This interview offers real-life examples of how Latvia built its EU fund management system—rejecting one-size-fits-all solutions in favor of transparent, effective mechanisms tailored to its own context. All these insights come directly from Inguna Sudraba, Team Leader of Component 5 “External Audit and Parliamentary Oversight” of the EU4PFM Programme, who was not only a direct participant in the process but is also currently supporting Ukraine on its path to EU integration.

1. How positively do you assess your country’s experience in working with EU funds (at the level of the state, central and local level of public administration, business)? Did your state manage to establish this mechanism?

Latvia was invited to initiate negotiations for joining the European Union exactly a quarter of a century ago, at the end of 1999. Three years later, on December 3, 2002, during the EU Council meeting in Copenhagen, Latvia successfully concluded negotiations for EU membership. Subsequently, on May 1, 2004, Latvia officially became a member of the European Union. On average, it takes approximately eight years from the commencement of accession negotiations to achieve full membership, so Latvia’s experience can certainly be described as positive.

The decision regarding European integration was approached with great seriousness by Latvia. From the moment the decision to join the EU was made, the entire nation united in pursuit of this shared goal. Comprehensive changes were implemented at all levels and across various sectors to meet all of Brussels’ requirements as swiftly as possible.

The work was meticulously planned: the parliament prioritized the necessary changes to legislation, the government established a specific agenda, and every institution appointed personnel responsible for managing the European integration process. Additionally, a specially created secretariat coordinated this endeavour at the state level. There was a strong commitment among all involved; no one entertained the notion of merely performing their duties for the appearance of compliance. Instead, they continuously sought the most optimal solutions for the country. Everyone understood that this represented a historic moment for Latvia, and together, we were authoring a significant chapter in our nation’s history.

Latvia’s engagement with European Union funds began in 1996 and was conducted across several key areas. The PHARE program, which stands for the Phare External Assistance Programme for the Republic of Latvia, focused on the development of state institutions. Under this program, the European Union allocated funds directly to consultants and contractors, with the EU also overseeing the allocation of these funds.

In contrast, the other two funds operated differently. To interact with them, Latvia needed to establish management mechanisms, financial reporting structures, transparency protocols, and accountability measures in line with EU standards. Such a system is typically developed in a candidate country in anticipation of working with EU structural funds once full membership is achieved.

The ISPA (Instrument for Structural Policies to Pre-Accession) program was aimed at developing large infrastructure projects, while the SAPARD (Special Accession Programme for Agriculture and Rural Development) program focused on fostering small businesses, agriculture, and green tourism. Together, these initiatives provided Latvia with 793.7 million euros over the course of ten years. This financial assistance was significant for our country; by the end of the 1990s, funding from European sources constituted approximately 10% of the national budget.

To effectively utilize these funds, Latvia, much like Ukraine today, was required to adapt its legislation and reform state institutions to comply with European standards. Additionally, economic and structural reforms were necessary, along with modernization of the infrastructure, enhancement of the rule of law, and the development of civil society.

The transformation of the country was apparent to us all. Airports, seaports, logistics infrastructure, and the road network underwent significant improvements. While challenges did arise—including instances of missed deadlines due to bureaucratic processes, issues regarding the non-transparent use of funds, and allegations of corruption—overall, the economy received a powerful stimulus. During the preparatory period, GDP growth reached approximately 60%. Moreover, a few years later, when the global economy faced challenges due to a crisis, Latvia was able to recover swiftly thanks to the reforms that had been implemented, and our experience was frequently cited as an example for other countries to follow.

2. Have you analyzed how much more your state receives from EU funds compared to how much it invests? Were you able to establish work with EU funds even at the stage of preparation for membership or only after accession? What were the difficulties? Could you share positive and negative examples of your country’s work with European funds?

Each country’s financial contribution to the European Union is public information. The European Commission publishes annual financial statements detailing the contributions of EU member states, and Latvia consistently occupies a mid-range position in this list, receiving approximately 850 million euros each year from the EU budget. These funds are allocated and utilized through structures that were established during Latvia’s preparation for EU membership.

However, it would be misguided to evaluate EU membership solely based on the size of financial contributions or subsidies. European integration represents far more than just monetary aspects; it embodies a civilizational choice. This integration encompasses standards of public administration, the efficiency of the state apparatus, security, public procurement and tender policies, documentation processes, a unified humanitarian space, and much more.

For European funds to be effectively utilized, Latvia had to complete substantial preparatory work. Specifically, the country was required to meet the Copenhagen criteria, which consist of three main categories: political requirements—such as the stability of democratic institutions, adherence to the rule of law, protection of human rights, and respect for minorities; economic requirements—that involved establishing a functioning market economy and ensuring competitiveness; and legal requirements—meaning Latvia had to be capable of adopting EU laws and regulations and implementing them effectively.

Additionally, Latvia was tasked with developing and submitting strategic documents that outlined how it intended to use the EU funds. This included creating a Comprehensive Development Strategy aligned with EU priorities and establishing robust systems for financial management and control to ensure transparency and accountability.

Concurrently, Latvia had to demonstrate that its institutional structures could effectively manage and administer the funds by implementing rigorous monitoring, evaluation, and reporting mechanisms. Following this, it was necessary to prove that all proposed projects for funding were consistent with EU policies and priorities, which included regional development, environmental protection, and economic development.

Another key requirement was the Co-financing Agreement, which mandated that Latvia allocate its own financial resources alongside EU support. Moreover, it was essential for the European Union to engage civil society in discussions to ensure that projects addressed the needs of the population and garnered widespread support.

People often assess efficiency using material criteria; however, institutional capacity is a significantly more important aspect. EU membership enabled Latvia to move away from the Soviet legacy in governance two decades ago. The country established a new, far more effective structure for its state apparatus. This transformation was imperative, as EU member states cannot operate according to their own rules; all must adhere to the same standards—ranging from management to ecology and production. This is not merely a matter of preference; it is a necessity to ensure that all countries operate on an equal footing and maintain fair competition.

Thus, it is crucial for Ukraine to recognize that these EU requirements are not optional. However, fulfilling these requirements is in the best interests of Ukrainian society, as transitioning to European standards is vital for the benefit of the Ukrainian people themselves.

3. What institutional framework and capacity does a state need to effectively work within the system of European funds? How should the system prepare internally (procedures, internal audit etc)? What is the main thing to understand in order to work with EU funds? Who is responsible for what within the system of public administration when it comes to funds and working effectively with them? Any recommendations on how to make this more efficient and successful based on your experience? When is the best time to start thinking about working with EU funds?

Let me begin by discussing when Ukraine started working with international funds. This work commenced in 2017, when the Ukrainian government and the European Union created several programs to implement the Association Agreement. The purpose of these programs was to assist Ukraine in meeting the criteria for EU membership. I have been involved in one of these areas for over four years, specifically helping the Accounting Chamber of Ukraine implement international standards. This work is carried out through the Public Finance Management Support Programme for Ukraine (EU4PFM) project. One of the primary goals of this initiative is to establish a truly authoritative supreme audit institution in Ukraine—an institution that is independent, professional, and commands a high level of trust and authority at the international level. Its findings will be respected and acknowledged universally. A key responsibility of such an institution is to assess how effectively the funds allocated by the European Union are utilized.

In Latvia, we developed an effective system for working with EU funds that encompassed planning, project management, policy development, financing, and five-year reporting on fund utilization, among other components. Some aspects of this system diverged from standard template solutions. For instance, Brussels proposed the establishment of a separate structure, known as the National Fund, to finance projects. This approach was followed by almost all other countries. However, Latvia contended that this method was expensive and ineffective. I participated in the negotiations and argued that Latvia had already created an exceptionally transparent financial management system. I proposed that the best approach would be to utilize the Treasury to manage the funds, thereby allowing the EU to maintain full control. Although this was an unconventional solution, we knew it was optimal for our country, and we advocated for it. This approach not only helped Latvia strengthen its institutions but also resulted in cost savings for the EU. Continuous dialogue was maintained at all levels throughout this process.

As I mentioned earlier, Latvia’s collaboration with EU funds was structured around three key areas. The first area was institutional development, which involved a program of advisory technical assistance where all funds were allocated directly by EU structures to consultants.

The ISPA program financed large infrastructure projects, necessitating the establishment of a comprehensive framework for managing European funds at the state level, which included coordination from ministries down to local authorities. For example, in cases where environmental projects were financed—such as the reconstruction of drainage channels or waste recycling initiatives—the Ministry of the Environment and local governments were integral to this process. Each level of governance was required to fulfil its responsibilities and contribute to the creation of an extensive system.

The SAPARD project provided support for agriculture. In this instance, the Ministry of Agriculture, alongside the Agricultural Support Service with regional offices throughout the country, facilitated interactions with the fund. This ensured that entrepreneurs and farmers could apply for funding, and subsequently report on its utilization. Before the commencement of the project, it was imperative to establish a system from the ground up that would cover the entire country and secure certification from the EU. I personally travelled to the most remote areas to assess how local offices functioned prior to presenting this project in Brussels.

As the National Authorizing Officer (NAO), my responsibilities included ensuring that the funds from the EU budget were processed accurately at the national level. I signed payment declarations for various programs and projects receiving EU funding, and I was responsible for certifying accounts to ensure that all records related to the use of EU funds were true, accurate, and prepared in accordance with the relevant regulations. Additionally, I signed reports that confirmed compliance with financial rules and the effectiveness of internal controls in the management of EU funds.

This role is crucial for maintaining accountability and transparency in the utilization of EU funds. It demanded meticulous attention to detail and a commitment to unprecedented transparency. By signing these documents, I ensured that all expenditures were well-documented, that funds were spent as intended, and that they were in full compliance with the objectives of the respective projects.

I can assure you that it is a great honour to fulfil such a role, knowing that every aspect of the financial process adheres to the highest standards. It has been incredibly satisfying to witness a large project functioning seamlessly as a unified entity, and even more gratifying to recognize that my efforts contributed to that success.

4. Has any informational or educational work been carried out so that all stakeholders learn how to work with EU funds? How did you train the state and local administration and other stakeholders to work with the EU funds?

For the system to function effectively at all levels, from the government down to the most remote settlements, effective communication is essential. A substantial number of explanatory materials was produced as part of these programs. Seminars were conducted to educate participants on how to work with the funds efficiently.

Particularly extensive efforts were undertaken within the framework of SAPARD. We not only established a support system for agribusiness, but we also trained personnel to operate within this system. Additionally, we provided training for citizens to ensure that entrepreneurs could correctly apply for funding.

In general, collaborating with EU funds does not require any specialized or esoteric knowledge. It fundamentally involves project management, task execution, reporting, planning, and communication. At first glance, it may seem that there is nothing particularly new in this approach. However, in practice, it serves as an excellent learning experience for everyone involved in such projects.

The funds are managed with complete transparency, and they consistently communicate their results to the public, showcasing a high standard of corporate culture and quality management. This type of cooperation is extremely beneficial for candidate countries, as it stimulates the development of both central and local authorities.

5. How did you manage between your country‘s priorities and needs and EU priorities? What needs to be taken into account, and how should the work be structured to ensure that funds are focused on what is necessary?

When Latvia was preparing for its accession to the European Union, the EU placed special emphasis on logistics infrastructure, environmental concerns, and agriculture. It was crucial for us to identify the projects that the country needed the most, develop a solid economic justification for them, and present these initiatives to Brussels, clearly articulating why their support was essential as a priority.

Through our cooperation with EU funding, Latvia successfully renewed its national roads, modernized its railway system, reconstructed the capital’s airport and bus station, upgraded the seaport in Ventspils, improved water supply systems, revitalized the drainage system, and implemented several other large-scale projects in cities such as Riga, Daugavpils, and Liepaja.

We must again highlight the importance of public finance management. Effective control and external evaluation are necessary; without these measures, questions about the efficiency of fund utilization will invariably arise.

I anticipate that many people may wonder how we can compare the accession processes of Latvia and Ukraine to the EU. Unfortunately, Ukraine faces a significantly more challenging situation. However, I cannot agree with those who argue that the ongoing war is a valid reason to postpone reforms until better times. On the contrary, the more difficult the circumstances within the country, the more essential it becomes to optimize governance, as resources are extremely limited, and every hryvnia counts. Moreover, being as transparent as possible is imperative to prevent opponents from accusing the government of corruption or the inefficient use of partner assistance.

The European Union functions as a well-oiled, reliable machine—a complex yet effective mechanism. It is imperative for Ukraine to reform its state according to European standards, ensuring fair competition, the rule of law, and a transparent and effective governance system. Achieving this success would represent a significant victory for the country.