Ukraine revised 2020 programme budget due to Corona crisis: Who to draw their belts tight?

Author : Anna Peshkova

Source : 112 Ukraine

First of all, additional expenses are allocated to fight the pandemic. The National Health Service, for example, will be financed for an additional 590 million USD. This money will go to hospitals for the treatment of coronavirus
18:39, 15 April 2020

Open source

In the most difficult period for the country's economy, the Ministry of Finance did not have time to prepare a new budget. In early March, Oksana Markarova left the office of the Minister of Finance, and at the end of March, her successor Ihor Umansky left it as well. The new minister, Serhiy Marchenko, has been working in the Cabinet for just over two weeks.

But there was no way to delay the adoption of the budget. Without social assistance and allowances for doctors, Ukrainians simply could not be quarantined.

Coronavirus fund and centralization

First of all, additional expenses are allocated to fight the pandemic. The National Health Service, for example, will be financed for an additional 590 million USD. This money will go to hospitals for the treatment of coronavirus.

Previously, it was proposed to fill it with 7,4 billion USD, then it was reduced to 4,4 billion and as a result, in the final version of the law it was halved - to 2,3 billion USD. According to the prime minister, the money would go for additional payments to doctors, to the expenses of the Social Insurance Fund, unemployment benefits. Directions are not yet clearly spelled out, the money is allocated, but the purpose is unknown.

As for the amount itself, experts consider it too miserable to significantly affect the situation.

The fund contains 2 billion euros. In relation to our GDP, this is 1.5%. Effective economic programs to minimize the effects of the crisis should amount to 10%,” Oleksiy Kushch, financial analyst, an expert at the Growford Institute, says.

The reserve fund of the budget, the funds of which the Cabinet of Ministers also manages manually, also increases to 148 million USD.

Along with such freedom of action for the authorities, the money allocated to the localities is being cut, the reform of regulatory bodies is being postponed. Subventions to support the development of the united territorial communities were canceled, the financing of the Ministry of Development of Communities and Territories was reduced by 251 million USD. It is not clear where should local budgets get the money from.

Cutting back on the financing of regional budgets is dangerous, because local authorities have to literally beg for financing to fulfill their obligations to the population. In such circumstances, political agreements begin to appear. Against the background of postponed local elections, all this can lead to a complete centralization of power.

Related: Verkhovna Rada cuts state budget for 2020

Subsidies and social assistance

The budget laid inflation at 8.7%, although experts predict much more serious numbers. The unemployment rate was increased, compared with the November budget, by 1.3% (less than 10%). Experts predict that unemployment can actually reach 30%. Even in the United States, unemployment is expected to exceed the rate of the Great Depression.

Against the background of the expected crisis, funding of the Pension Fund was increased by 1 billion USD, needed for the indexation of pensions and other assistance.

Earlier, the state lacked about 111 million USD to carry out indexation (about 11 USD for each of 10 million pensioners). Another 295 million USD was needed for presidential supplements. That is, in total - about 406 million. Apparently, the remaining 701 million USD will partially cover the growing deficit of the Pension Fund.

Related: Ukraine's Parliament votes to reduce 2020 state budget

But everything is not so smooth with other payments. The cost of subsidies in the budget was reduced by 295 million USD.

Considering that 3.3 million households received subsidies this heating season, 37 million USD are needed to help pay for utilities. The math is simple: some citizens will precisely feel the help of the state, but much fewer people will receive subsidies.

By the way, the Energy Efficiency Fund will not receive its 59 million USD.

The cost of living would not be increased. That is, 77 USD per month will be considered an acceptable minimum of social payments in the future. And this despite the fact that during the epidemic, the need for drugs and remedies only grows.

Social assistance spending was also cut by 48 million USD. In particular, single mothers will receive less. Thus, along with statements on the expansion of aid, it is only being reduced.

Employees of state enterprises, the National Bank, MPs, judges and members of the Supervisory Board during the quarantine period will not earn more than 1,700 USD per month. At the same time, the costs of the State Judicial Administration will still not be reduced.

Culture and sports

While spending on social assistance is declining, there is no question of cutting the defense budget. We are simultaneously waging a war with the coronavirus and war in the east of the country. Sports will receive half the amount of money than previously expected – 85 million USD. Minister Vadym Gutzeit reassures that at least athletes will have salaries.

Funding for the New Ukrainian School was cut by about a quarter, a subvention for the support of teachers of 55 million USD was cut. Thus, young teachers will be left without surcharges. Funding of our research and development sphere – the National Research Foundation – was halved.

Related: Rada to vote for draft laws without discussions, except for laws on budget changes, land market

But during the pandemic, an additional 770,000 USD were allocated to the Ukrainian Institute at the Ministry of Foreign Affairs. That is, during the period of the epidemic, it remains critically important for the authorities to represent Ukrainian culture abroad and create a positive image of our country.

The Ukrainian Cultural Fund will remain in beneficial position; it gets additional 5,5 million USD. Another 1,8 million went to patriotic cinema. This, in particular, was asked by MPs from the party Poroshenko, who previously unexpectedly voted for the law on the land market.

The income of the farmers was not cut, so they will receive previously planned 150 million USD. But financing of various funds, including the fund under the President of Ukraine for 18 million USD, completely disappeared. The government debt management agency still will not be financed for 1,9 million USD, although earlier the Cabinet of Ministers stated that it simply cannot be done without it. Also this month, a support program for “socially active youth” was supposed to start, which was to encourage young people to travel across Ukraine. So the state has saved about 18 million USD on it.

Only one third (out of the 1,6 million USD) was left for export promotion.

The dollar rate was laid at the level of 27 UAH per 1 USD, and today, it amounted to 29.5 UAH per 1 USD. Usually, however, the real dollar exchange rate does not reach the indicators laid down in the budget, and the estimate, accordingly, is underfulfilled. There is a risk that the same thing will happen this time.

Related: Ukrainian MPs offer reducing state budget revenues by 3 billion USD

GDP growth, which was expected at least 3% this year, turned into a 3.9% decline. And this is still an extremely optimistic option. Even Prime Minister Denys Shmygal himself believes that the fall will be about 4.8% of GDP. In fact, the figure might be close to 10%.

The state is trying to solve the problem by taking money not only from MPs and subsidy receivers, but also from enterprises. They will have to transfer to the budget not 1,5 billion USD, but 2,5 billion USD. This could significantly undermine their development. And in general, there are doubts that this amount will be available, and the budget will still be implemented. Interestingly, enterprises are expected to invest in the treasury, despite the fact that the government predicts a decrease in their income.

Related: Ukraine’s parliament agrees main expenditure items of renewed budget, - PM

By the way, revenues from privatization are being reduced from the planned 624 million USD to 18 million USD, since privatization has been suspended for the duration of the epidemic. I must say that before the article on obtaining money through privatization was not the most realistic: from year to year the pledged funds could not be obtained. If state-owned companies sell, the money will go immediately to cover the budget deficit.

The National Bank will have to transfer additional 73,5 million USD to the budget.

It would seem rational or not, but the picture is looming. But, if you pay attention to the budget deficit parameter, it becomes clear that no sequestration happened. The deficit was increased three times - from 3,7 billion hryvnias to 11 billion. If 2,3 billion USD goes to the Coronavirus Foundation, why did it take more than 4,7 billion USD?

Apparently, the fact is that the revenue side is significantly underfulfilled due to a lack of taxes because a significant part of the economy is idle. Budget revenues will be reduced by almost 4,4 billion USD, and expenses will increase by 3 billion USD. Here are these “hidden” 1,2 billion USD.

Related: IMF expects Ukraine to adopt law on banks and changes to 2020 budget

The government plans to close the budget deficit with loans of 10,9 billion USD. At the same time, the article of the Budget Code on medium-term planning stops. That is, our public debt can grow uncontrollably. The very decision to stop the provision of the code is very doubtful since from a legal point of view the law cannot do this. But this aspect, as always, does not stop anyone.

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