The budget we need

The Verkhovna Rada has postponed the budget vote for another two weeks. The Cabinet is to revise the bill within this period of time. A positive result would be very important for this country for a number of reasons. Firstly, the International Monetary Fund (IMF) is looking forward to a realistic budget to be able to continue crediting Ukraine. “We need to have a full consensus behind a sustainable budget position that will avoid inflation or any increase in unemployment,” Caroline Atkinson, director of the IMF’s External Relations Department, said the other day. Secondly, it will be hardly possible to achieve a stable economic growth without a transparent economic policy. And, thirdly, foreign investments will never come to a country which has no clear-cut macroeconomic targets for a year. While the authorities keep looking for the budgetary golden mean, The Day has asked experts for their opinions on what an “ideal budget” must be in the current conditions and whether it is possible to approve one, given this kind of politico-economic tension.

Iryna SHCHERBYNA, director general, Institute of the Budget and Socioeconomic Studies:

“The proposed draft budget has the same structure as the previous ones. There is not a single alteration in it in the context of a changed macroeconomic situation in this country. Nor do the amendments made by MPs contain any structural proposals aimed at overcoming the crisis in specific sectors. They have made no proposals about reformatting the budget itself or making sure that state funds be utilized effectively. Ninety-nine percent of the parliamentary proposals are about technical matters, with special emphasis put on lobbying the interests of certain cities, businesses, and industries. Even if these proposals are taken into account, the draft itself will not change in content.

“In my view, with due account of the upcoming presidential elections, it is impossible to pass a full-fledged and effective budget. Any variant of it is bound to promise all kinds of benefits on the eve of the elections. So it is better to go through the first quarter of 2010 in line with Budgetary Code provisions, guided by the principle of one twelfth of the annual funding of the ongoing programs and projects. Then, after the elections, they should pass a revised budget based on the program of Ukraine’s socioeconomic development. This medium-term budget will identify the targets and indicators of an effective utilization, not only distribution, of budgetary funds. Besides, every minister should be responsible for the effective utilization of budgetary funds in his ministry.”

Volodymyr LANOVY, president, Market Reforms Center:

“I have two remarks about the draft budget the MPs proposed. Firstly, the revenues have been overrated, which creates the risk that the budgetary targets will fail to be met. To avoid this risk, it will be necessary to increase foreign or domestic borrowings as well as the state budget deficit. Secondly, the structure of budgetary expenditures is again socially oriented on the whole: it does not call for creating new businesses and jobs or any GDP growth. And this means a continuing crisis in and passivity of the economy, which will cause further economic degradation.

“The rejected draft budget also has questionable indicators of the currency exchange rate and inflation. It is impossible to maintain a 10-percent inflation rate and, at the same time, strengthen the hryvnia’s exchange rate. With the current conditions in view, the hryvnia’s rate can either weaken next year or remain at the present level. If they still try to strengthen the hryvnia in 2010 by administrative methods, this country will again be flooded with imported goods. In this case, what will happen to the national producer?

“The revised draft should include strategies and plans that will show which way the economy and its sectors are going. An ideal budget must begin with realistic revenues and expenditures and lay down the procedure of spending the state finances which will help create new jobs and galvanize the economy. In 2010 Ukraine should launch new aerospace projects together with its international partners. A sufficient financial resource should be made available to small and medium business and the agrarian sector.”

Borys KUSHNIRUK, economist:

“The new draft budget should be realistic in terms of meeting macroeconomic targets, revenues, and expenditures. Why is this important? Unrealistic revenues create a huge problem for the state in fulfilling its obligations, while an unrealistic budget is conducive to new mechanisms of corruption.

“What also raises concern about the 2010 draft budget is the proposed model of the ad hoc management of the Stabilization Fund. If this model survives, it is unclear what parliament is needed for, because the Cabinet will decide what the Fund’s money can be spent on.

“What can be retained in the revised budget is the provision for higher social standards of living. But at this stage of economic development, this provision should only be applied to people who draw the lowest incomes (wages and pensions). Such additional disbursements could be made by way of economizing on state resources allotted for various purchases. According to the Auditing Chamber, in 2008 the state made purchases worth nearly 80 billion hryvnias with only one seller involved. In other words, officials made these purchases without any bids invited, essentially setting the prices themselves. An effective bidding mechanism would allow saving up to 30 percent of state funds allocated for purchases.

“One more thing: it would be wrong to focus on investing in roads in 2010, because the budget will not directly benefit from this. In my view, money should be channeled into energy saving, which will dramatically cut energy expenditures of the state budget, businesses, and individuals.”