Can We Afford These Expenses?
The state budget has been increased one and a half times
Last week Ukraine’s First Vice-Premier and Minister of Finance Mykola Azarov met with the representatives of several international financial organizations for the first time after announcing on Friday the projected targets of the 2005 budget. It was very important for him to show the World Bank, Ukraine’s principal creditor by far, and Mr. Shigeo Katsu, the newly appointed World Bank Vice-President for Europe and Central Asia, that official Kyiv was planning a feasible budget. Next year, thanks to the Yanukovych cabinet, this country will have a budget that for the first time will surpass revenues of UAH 110 billion ($20 billion). This is not, of course, a great figure — for it will hardly place this country even among the top ten international corporations. Yet the progress is impressive: this year budget revenues are estimated at a mere UAH 65.2 billion.
This figure is still more impressive “on the domestic front.”
The budget was aimed, to a large extent, at appeasing the opposition, which had been tirelessly demanding to increase its revenues, and at satisfying the appetite of local elites. (Proof of this is a number of statements by the premier to the effect that, while formulating the 2005 budget, the government of Ukraine has been exploring the possibility of delegating considerable financial rights to the regions). Petro Poroshenko, chair of the parliament’s Budget Committee, said not long ago that the 2005 state budget should reach at least UAH 100 billion. “Please take it,” says the cabinet, “and mind you don’t fail with the first reading, because we’ve taken your wishes into account.”
Yet the draft budget has not fully taken into account the interests of coalition factions.
It is expected that the budget will be submitted to parliament one of these days and debated as early as September 23. It is not so easy to forecast the result of these debates because many oppositionists are convinced that the budget should be formed and submitted by the new ministers appointed by the new president.
On its part, the cabinet is teeming with optimism and is certain that regardless of all unexpected political reversals, Ukraine’s economic growth will reach an all- time high of 8.6% in 2005. Yet, as always, the government has opted for a conservative scenario. According to First Deputy Minister of the Economy, Valery Vashchevsky, an analysis of partner countries’ macroeconomic achievements and an assessment of the prospects of Ukraine’s three main commodity markets (oil, metal, grain) show a rise in export prices for Ukrainian products and an increased demand for oil. All this calls for a conservative scenario for this country’s socioeconomic development. But even in this case the gross domestic product, and industrial and agricultural output are to rise by 8.6, 12, and 4.8%, respectively.
The next day, Saturday, the cabinet approved the Program of Ukraine’s Social and Economic Development in 2005. Describing this program, Mr. Azarov assured the audience that the budget targets would have a considerable impact on the population’s real incomes (10% growth, including at least 12% in wages and 25% in the farming sector).
In a word, this cabinet claims, like all the previous ones, that the budget is socially oriented. This is undeniable. According to the new budget, expenditures will rise fivefold for medicine, two and a half times for scientific research, and three times for education. It also calls for a twofold increase in payments to the Pension Fund. In addition, the government is certain that the growth of people’s incomes will easily offset the projected inflation rate of 6.2% and the already skyrocketing gas prices. Where is the cabinet going to obtain the money for all this? According to Mr. Azarov, hopes are being pinned on improved management of taxes and a more effective economy. “There are such untapped reserves as higher labor efficiency, control of the shadow economy, and the resolution of such problems as overrated export prices and underrated import prices,” said the first vice- premier. Still, he added, “Ukraine is an absolutely reliable borrower. The ratio between its direct public debt and GDP today is 17.5%. We are borrowing at 5.3%. We also intend to borrow money at a high rate. This is a favorable policy because we are thus reducing, not increasing, our debts.”
The parliamentary vote can either reach or fall short of these expectations. Much will depend on the attitude of Speaker Volodymyr Lytvyn who is trying to become a sort of third force in parliament. (It should be noted that he has every opportunity to do so in the current conditions). Speaking to Volyn oblast village council heads on September 13, he predicted that parliamentary approval of the 2005 budget would be “difficult but totally fair.” This somewhat vague wording suggests that Mr. Lytvyn will be in no hurry to wield his more and more pliant “conductor’s baton” in favor of the cabinet. The Speaker said he had no final information so far about the budget’s main target figures, but he knows that the draft “in fact does not take into account” the agreements between cabinet and parliament on the agro-industrial complex (channeling 10% of GDP into rural development). This is why he predicts that parliament will take “a very tough stand” on the budget, unless the latter clearly identifies priorities, including the agro-industrial complex. The Speaker announced that the Auditing Chamber would independently analyze the implementation of the 2004 budget. Mr. Lytvyn believes this should be done so that “we can have a no-nonsense talk” on the main financial document of 2005 on September 23, when the budget is to be presented in parliament.
