The payment of external and internal debts is the main challenge for Ukraine next year. The significant amount of money of the budget adopted by the parliament will be allocated for this purpose. It didn’t affect the appetites of deputies, who submitted to the document more than 2,5 thousand amendments of more than two trillion hryvnias, but it added a bit of common sense during the examination. IMF became an additional restraining factor, which has to analyze the adopted State Budget and only then approve the participation of Ukraine in the next fund program. However, even the general balance of the adopted document doesn’t allow to call it “Budget of the state building” as the Prime-Minister wanted. This is the budget of stagnation and pre-default state.
The overall volume of the state and state guaranteed debt in next year will reach 62% of the country’s GDP. Nominal GDP is set at UAH 3947 billion. It helps us to understand what a huge amount of money the country borrowed and has to return. Next year, the total payments for state debt will amount to about UAH 417 billion (57.3% on domestic liabilities and 42.7% on external liabilities). And over UAH 145 billion we’ll need to serve the state debt, that’s is the payment of interest rate for loans. About UAH 89 billion we’ll return to domestic lenders and another UAH 56.4 billion – external ones. We can’t cope on our own and without borrowing, therefore, the Ministry of Finance is planning to borrow another UAH 324.5 billion next year. And this is a daring plan, taking into account the fact that this year’s borrowing schedule was implemented slowly, although it was UAH 110 billion less.
It’s clear that there’re few of those who want to lend money to a country that is on the debt edge, so we’ll have to pay a lot for these loans. According to the government’s plans, the average rate on domestic instrument debt will be 15.7% per annum, while the external debt will be about 9%. It means that out loan burden will be getting heavier over the years. But in Ukraine, we traditionally live from budget to budget, at best planning something within the current year.
Even if the IMF continues its cooperation with Ukraine, the situation will remain rather difficult. In particular, due to the fact, the majority of loans (more than 60%) the Ministry of Finance plans to attract not from the external, but the domestic market. It’s a clear threat for hryvnia as the government will buy currency on the domestic market, artificially creating its deficit and “lowering” the hryvnia exchange rate. The NBU (National Bank of Ukraine) won’t have resources to offset exchange rate fluctuations, which directly threatens us with devaluation and inflation. Taking into account that the adopted State Budget is calculated considering the rate of UAH/USD 29.4 by the end of the year and the level of inflation at 9.4%, there’re real risks of non-fulfilment of the State Budget and further deprivation of the population.
In particular, social standards, approved by the State Budget, are actually raised only at the level of current inflation. Subsistence level will amount to 1853 UAH from January 1, 2019, to UAH 1936 from July 1, to UAH 2027 from December 1. The maximum amount of child allowance for single mothers rises from UAH 1626 (for children under 6-year-olds) to UAH 1 779 and from UAH 2 027 (for 6 to 18-year-olds) to UAH 2 218. Next year, the volume of the state social assistance to low-income families will increase for each child aged 0 to 13 to 250 hryvnias, and for each child aged 13 to 18 years to 500 hryvnias. In fact, it’s not about raising, but about “freezing” at the existing level, taking into account the inflation. If it’s bigger, then people who receive state aid will become even poorer.
It’ll be a little easier for pensioners, whose pensions in the state budget exceed UAH 166 billion, which is 30 billion more than this year. Before the presidential election in May 2019, pensioners are promised another stage of indexation. But there’s no need to hope for such a rapid growth as in the last year because the indexation is tied to the growth of the wages and here we haven’t seen a rapid growth. Also, a part of the pensions will go to the “military” pensioners. Anyway, the average pensions will remain low in the state, guaranteeing a dignity age only a small part of the pensioners.
The parliament decided not to increase the expenditures on subsidies, leaving them at the level of 55 billion hryvnias, whereas 20 billion of them will be directed to monetization of subsidies at the end of the current heating period. This article is the riskiest according to the data of the Ministry of Social Policy. They say that verification of people who receive subsidies allowed the state to save up only UAH 6 billion this year, while the total amount of expenditures will be almost UAH 70 billion. So, the planned UAH 55 billion won’t be enough, under conditions of the tariff increase and a possible decrease of the income of some population layers.
And the deputies’ principle amendments won’t concern the well-being of the population. The parliament lives on the eve of the upcoming elections and traditionally considers the State Budget as a resource of its financing. Additional money was allocated to the building of the playgrounds (+ 200 million hryvnias), reconstruction of swimming pools (+200 million hryvnias), sports development (+90 million hryvnias), creation and repair of existing sports complexes at educational institutions (150 million hryvnias), conduction of competitions among young people (+20 million), updating of the material and technical base of higher educational institutions (+500 million hryvnias), support of the youth organizations (+10 million hryvnias). Once again, the parliamentarians drafted the so-called “majoritarian” subvention for the development of the region (+4.5 billion UAH) to the state budget, at the expense of which deputies can build the same playgrounds in their majoritarian districts.
It’s clear that the initiatives are literally aimed to buy the loyalty of the regions before the election. In fact, the local budgets would be enough for all these expenses. According to the adopted State Budget, the financial resource of local communities allow them, without the support of deputies, to cope with the installation of swings and repair of stadiums, because it should reach UAH 573 billion. At the same time, the region’s own incomes will amount to UAH 288.5 billion, while transfers from the State Budget and reverse grants-in-aid for local budgets will amount to UAH 298 billion. UAH 5.8 billion was added to the Regional Development Fund and UAH 2 billion of subvention for the formation of the infrastructure of the united territorial communities. Truly, the parliament never cares about the regions so much as in the year of elections. Thanks to the IMF, that the appetites of the MPs are very humble this year comparing to the previous pre-election whims.
The medical subvention will amount to 56 billion UAH, but parliamentarians have taken into account that the reform will require additional money, therefore at the second reading the additional funding of a number of programs has been predicted. In particular, UAH 312 million was added to the diagnosis and treatment of diseases with the introduction of experimental and new medical technologies, another 300 million for the treatment of Ukrainians abroad and another 90 million for the medical services in particular medical institutions.
The workers of the education sphere aren’t so lucky. The actual educational subvention for the regions from the state budget will amount to the same UAH 71 billion, the money was only added to the training of the medical workers.
Ministry of Internal Affairs, the Ministry of Defense and the SBU (Security Service of Ukraine) are luckier. These are the only departments which expenditures have increased significantly in comparison with the current year. The deputies didn’t stop, adding at the second reading an additional one billion to the Ministry of Defense, that is 250 million to the Ministry of Internal Affairs and 150 million to SBU.
Financing of the rest of the departments next year will remain the same as in the current year. Of course, it’s impossible to finance any increase without increasing the tax burden in the absence of economic growth. After all, rental rates for the use of forests, water, radio frequency resource were raised. VAT revenues were increased by UAH 300 million. “Gas” rent (taking into account the increase of the tariffs) was increased by UAH 9 billion. Two more billions were decided to take from the National Bank. The rest of the necessary money can be found, according to the Budget Committee, in the course of reallocating of the expenditures. In most cases, this reallocating implies that expenditures simply stop at a certain budget period. And it’s likely that some managers will be surprised to see the final version of the state budget, which didn’t include part of the budget programs.
However, it’s worth noting the responsibility with which the Ministry of Finance and the Budget Committee of the Parliament considered the budget process. Now, it’s important that in the next tough for the country year, the deputies wouldn’t start amending the adopted State Budget, increasing its expenditure part. Unfortunately, there’s no any fuse in this case.
Text by Valentyna Yushchenko
Photo by Ivan Pechenyi