Ukraine's Cabinet is doing well in black and white, how does it work behind the scenes?

Author : Mykyta Sinitsyn

Source : 112 Ukraine

Ukrainian Cabinet of Ministers, led by Oleksiy Honcharuk reported on its activities for 2019, posting the report on the government website
13:00, 20 February 2020

Cabinet of Ministers of Ukraine

Ukrainian Cabinet of Ministers, led by Oleksiy Honcharuk reported on its activities for 2019, posting the report on the government website. The document is structured according to the departmental component logic and submits information about what the ministries consider to be their achievements, informs about the goals and ways of their achievement, which are set by officials.

A considerable part of the report is devoted to the economic and financial situation, which is quite understandable by recent data on GDP growth by the end of the 4th quarter of 2019 by 1.5%, which was the worst result since 2016, and the indicators of the 1-3 quarters did not decrease below 4%.

However, the Cabinet’s report is unlikely to find a negative word in its address.

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All about the good news

The government report claims that the GDP growth rate in Ukraine was one of the highest in Europe and exceeded 4%, however, they clarify that for the 2nd-3rd quarters, making, respectively, 4.6 and 4.1%, in annual terms, the Cabinet hopes for the growth of 3.3-3.5%.

Ukrainians, according to the report, began to live richer lives - their nominal incomes for January - September increased by 15%, and real ones by 6.3%, taking into account inflation of 4.1%. The report also speaks in favor of an increase in social standards: an increase in the minimum wage by 13.2%, the living wage by 9.4%, the minimum pension by 9.4%, and the average monthly wage by 18.4%, which amounts to 10,497 UAH (430 USD), and the average pension increased from 2,646 (108 USD) to 3,083 UAH (126 USD).

According to the Cabinet, the level of employment of the population from 15 to 70 years has grown - from 57.2% to 58.3%. The result is that “the poverty level by absolute criteria in the 1st half of 2019 decreased by 6.2%,” the government report reads.

The Cabinet of Ministers did not forget to boast of records of farmers - a crop of grain and legumes of 75.1 million tons and 15.3 million tons of sunflower.

Even generally negative trends in the report of the Cabinet are presented as an achievement.

Thus, the Ministry of Finance, in its own section of the report, claims a deficit of the state budget for 2019 in the amount of 78 billion UAH (3,2 billion USD), or 1.9% of GDP, which, with the planned indicator of 91.1 billion UAH (3,7 billion USD), or 2.26 GDP, which the Ministry of Finance serves as an achievement. At the same time, by 2024, the department hopes to reduce the deficit to 1.5% of GDP.

At the same time, the Ministry of Finance declares that the plan for state budget revenues is 99.1% fulfilled, although in January the ministry, referring to the Treasury service, announced a shortfall of 3.1% of the plan to the treasury.

In order to lower the tax burden and simplify the process of tax collection, the Ministry of Finance reports on the preparation and submission of a number of bills to parliament, including the so-called tax reform under No. 1210, which caused the business to have completely opposite feelings.

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The Ministry of Finance is very proud of the reduction in interest rates on loans: 2.4% in hryvnias for the economy and business - to 18.6% and 15.7%, respectively, and 0.7% for consumer loans - to 33.1%. The department is particularly counting on the program "Affordable loans 5-7-9%", although from February 1 to 7, only 13 loans were taken and another 172 applications are considered.

As an example of wise financial management in the department of Finance Minister Oksana Markarova, the government debt was reduced to 43.8%, which is UAH 1.764 billion, or 74.5 billion USD. At the same time, the share of hryvnia in the total debt increased from 33 to 41 %, which reduces currency risks for debt. The body also boasted of a reduction in interest rates on government bonds from 18% at the beginning of 2019 to an average of 10% by the end.

Ministry of Economy continues to amaze

Minister of Economy of Ukraine Tymofiy Mylovanov and his department continue to surprise: back in late January, an official, speaking of a 1.8% decline in industrial production following the results of 2019 - after growth over the previous 3 years, blames the fall in metal prices and trade sanctions of the Russian Federation, and even too warm weather.

The Ministry of Economy turned out to be true to itself, and its part of the Cabinet’s report turned into a set of wishes completely devoid of specificity:

- the main task in the department is to allow Ukrainians to dispose of their property, which means opening the land market, although officials did not bother to make any forecasts of the impact of this process on the country's economy;

- the department boasted of an increase in food safety and a fall in unemployment, but again without any figures;

- a separate section turned out to be dedicated to the goal of receiving more income from state property, though it didn’t show any figures there again, which is quite logical, because from the privatization in 2019 the state budget received only 536 million UAH (21,8 million USD), or 3% of the plan of 17.1 billion UAH (700 million USD);

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- the department sets itself the task of achieving better conditions for Ukrainian exports and reports on its growth; Indeed, according to the results of 2019, exports grew by 5.8%, though it happened more likely due to farmers, metallurgists reduced production exports by 1.374 billion USD, and the overall negative balance of foreign trade increased to 10.7 billion USD;

- the department has also paid attention to the monopolies and even copyright;

- a separate section in the report of the Ministry of Economy fell on the issue of attracting investments, however, except for the list of bills for the parliament, how exactly they are planned to be attracted to Ukraine, the minister did not specify.

Experts on Cabinet’s economic program:  beautiful picture, nothing more

On the same day as the report on the implementation of the Cabinet’s program was released, the Ministry of Economic Development, Trade, and Agriculture of Ukraine presented its own strategy for economic growth.

The economic department called the main goals of the strategy - GDP growth of 40% over 5 years, the creation of 1 million new jobs and attracting 50 billion USD of investments. Privatization, benefits for large investors investing more than 100 million USD in projects, and the development of industrial parks should help attract investment.

The economic experts agreed that the program presented by the department of Mylovanov has very little in common with reality.

“A beautiful picture, which repeats the theses that have already been heard, the unreality of which is obvious even to non-experts,” economic expert Oleksandr Okhrimenko assures.

“The problem of economic planning of the Cabinet of Ministers is a violation of the Plan-Do-Check-Act in management, in which after planning and action the verification of the result and the adjustment of the plans necessarily follow. The last two components are absent here.”

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The Cabinet of Ministers insists on a 40% increase in GDP over 5 years - and this is after a slowdown in GDP growth in the 4th quarter of 2019 to 1.5%, and an increase in the decline in industrial production from 5% in October to 8% in December. Moreover, this fall happened already during the activities of the new government, which means it became its consequence,” economic expert Oleskiy Kushch notes.

According to him, instead of recognizing mistakes, the Cabinet of Ministers is looking for the parts to be blamed on the failure – the decline in world metal prices and even bad weather. Although, despite the reduction in prices, Vietnam, as emphasized by Oleksiy Kushch, increased its metal production by 25% and ranked 14th in the world in its production, immediately after 13th place, which belongs to Ukraine, which reduced production by 5%.

“The Cabinet of Ministers offers the economy to develop according to the same model, which has already shown its failure in the 4th quarter of 2019. The result will be the same - Ukraine should not wait for significant economic growth in 2020, at best it will be possible to overcome the negative consequences of 2019 and stabilize the situation,” Oleksiy Kushch predicts.

Also, according to the expert, the plans of the Ministry of Economy for GDP growth in such sectors as agribusiness, IT, chemistry and pharmaceuticals do not have real content, since the last three have a meager share in the structure of GDP.

Director of the Institute for Economic Development of Ukraine Oleksandr Goncharov believes that the slowdown in GDP growth at the end of 2019 was caused by government miscalculations:

- lack of a comprehensive investment strategy, respectively, there is no powerful influx into the real sector of the economy of both foreign and domestic investments from the joint investment market;

- the creation of a financial pyramid of government bonds, which requires an increase in the money supply;

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- high National Bank discount rate of 11%, which leads to the inaccessibility of loans for business.

Economic expert Danylo Monin also comes to the conclusion that the Cabinet of Ministers in its program simply replaces the name, using the term "tax reform" for actions that would rather fit the expression "tax terror."

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