Budgetary appeasement
Budget hearings will continue this week in the Ukrainian parliament. The cabinet promises to submit a revised draft of the country’s budget for the first reading. So the government’s most important task now is to convince Ukraine and the world that next year’s budget will be realistic and free of serious risks that could adversely affect the national financial system and people’s wallets.
Last Thursday First Deputy Prime Minister and Minister of Finance Mykola Azarov spoke ex-officio in parliament on behalf of the cabinet. According to the minister, the cabinet has done tremendous work in the budgetary field: together with the Parliamentary Budget Committee it considered more than 3,000 proposals on how to improve the budget. But the very appearance of these proposals, Azarov said, sparked numerous rumors, absurd speculations, and outright lies. Some people claim that if there are so many commentaries, this means the budget leaves much to be desired.
Azarov has diligently and successfully refuted this claim. Thus, while the government is modifying the 2007 state budget draft, like before it is still projecting a deficit of 2.55 percent in the GDP. The “warring parties” have managed to settle their differences concerning 57 articles. Moreover, the government has issued more than 100 instructions apparently aimed at satisfying some appetites, thereby appeasing the noisiest opponents. Meanwhile, the rest have been promised that their remarks will be taken into account while preparing for the second reading.
The government was greatly inspired by the International Monetary Fund mission, which considered 2.55 percent an acceptable level of budgetary deficit, as well as some international rating agencies that upgraded Ukraine’s standing. Azarov disclosed that the government is going to put into operation both domestic and foreign loans, as well as privatization earnings, to offset the deficit.
The deputy prime minister reiterated that “the budget’s main priorities remain the same in the course of draft revision, namely, the preservation of social targets, restoration of the investment-and-innovation pattern of economic development, long-term programs, and infrastructure projects. The budget does not provide for social guarantee cuts,” he reiterated
It is clear from Azarov’s words that the government has achieved a budgetary success thanks primarily to the fixed gas price — $130 per 1,000 cu. m. This also allows liquidating the so-called stabilization fund set up to compensate for the gas price increase (to $135, as was first suggested) and to redistribute these funds within the framework of the budget, thus partly meeting some proposals that had been set aside temporarily.
According to Ukraine’s finance minister, the draft state budget does not call for new taxes or increase existing ones. However, it envisions some relaxation of fiscal pressure and certain restrictions on maximum pensions. Azarov claims that Ukraine has permitted major discrepancies in this matter. While elsewhere in the world it is considered normal if the minimum/maximum ratio is 1:4 for pensions and 1:10 for wages, in Ukraine the pensions ratio is 1:100. Azarov appealed to a sense of justice, and his appeal seems to have been heard. At the same time, he admitted that restricting — in fact reducing — old-age pensions is a violation of constitutional rights and freedoms. (A source close to the government told The Day that a decision has finally been made to set this issue aside.)
The current government is treating the 2007 budget like its own daughter, while this year’s budget is more of a foster child because it was drawn up by a different cabinet. But when it comes to assessing its fulfillment, Azarov prefers to refrain from using such a harsh word as sequester. Of course, he does not deny that the budget will have to be corrected or, to be more exact, some of its expenditure items are certain to be slashed. He is still very unwilling to call it sequester.
Azarov’s term — correction — undoubtedly sounds a bit milder but does not change the crux of the matter: some people will have to tighten their belts. So far, Ukraine’s chief financier is not saying who will have to do this, but it is already clear that ministers and other decision- makers, including members of parliament, should not fear budgetary cuts to their privileges. It is absolutely clear that these expenditures defy comparison with the overall budget figures and can in no way influence them.
