Experts Call 2002 Budget Main Risk Zone
Leaders of the Ukrainian government’s German Consultative Group for Economic Reforms have announced their outlooks for Ukraine’s economic development in 2002. According to Lutz Hoffmann, Ph.D. in economics and director of the Munich-based Institute of Eastern Europe, 2002 is going to be a difficult year for Ukraine. The government to be formed after the parliamentary elections will have to make a massive effort to keep last year’s positive tendencies going. “It is very important that a reform-oriented government comes in the wake of the elections. But we must be realists: whatever initial steps it takes, their results will be obvious only in 2003,” Dr. Hoffmann said.
Dr. Hoffmann believes Ukraine managed to achieve high economic growth rates in 2001 owing to a considerable (20%) rise of investment, positive consequences of the hryvnia devaluation in 1998-1999, more active foreign trade, and a favorable world market situation. However, these factors may not continue this year, in his opinion: compared to the last year, the world commodity market situation has notably worsened (“the US is in a period of slump, with economic growth also slowing in Western Europe”), the hryvnia devaluation is no longer having its previous effect, and foreign trade is also showing negative tendencies. Dr. Hoffmann thus appraises the current state of reforms: although there is no reverse movement, there are no visible impulses. Yet, he points out, this is a common situation on the eve of an election.
With this in view, the German experts conclude that the year 2002 is going to see a considerably lower economic growth rate than the last year’s 9% and think that the government’s promised 6% is “quite an optimistic forecast... If the economic growth rate is lower than 6%, budget revenues will accordingly also be lower than those planned,” Dr. Hoffmann explains, saying that the state budget is “the No. 1 sphere of risk.” There are also other factors that could adversely affect budget revenues, he thinks, such as the IMF demand to service the public debt which has resulted from the nonpayment of VAT rebates. According to Ricardo Giuci, a German Consultative Group expert, one should also remember that, since the export of metallurgical products accounts for a large share in the overall Ukrainian export and in GDP, a likely reduction in world prices or demand could also affect the budget. “One should also pursue a sound exchange rate policy,” the expert told The Day, noting that the current high rate of the nation’s currency is inadmissible. Yet, he said the German experts were least of all concerned about this factor, for they trust the National Bank completely.
As we know, President Leonid Kuchma has said the 2002 budget is unrealistic and instructed the government to take additional measures to strengthen budget revenues. The very first month of the year has spotlighted serious difficulties with budget revenues: as of January 23, the State Property Fund had received a total of UAH 1.5 billion, only 58.1% of its planned earnings.
