The state budget of Ukraine for 2010 – with revenue of Hr 270 billion (about $34 billion) — contains two lies in the title: It cannot really be called a true budget, and certainly not one for the state. It’s more like a budget for the Party of Regions, which has a monopoly on political power in today’s Ukraine.
Here are the ugly details:
The budget itself has every chance to be turned into farce because Prime Minister Mykola Azarov and the finance ministers can move funds around at will. Neither parliament nor the Cabinet of Ministers as a whole will have anything to do with how the money is spent.There is no figure for the budget deficit. The government can increase the budget deficit at will by guaranteeing private loans and borrowing freely. Our estimate is that the budget deficit could reach Hr 150 billion ($19 billion), out of the roughly Hr 270 billion budget.
The budget increases debt substantially. Apart from the expected cash from the International Monetary Fund, the government plans to borrow Hr 100 billion for the actual budget (Hr 66 billion on the domestic market and Hr 34 billion on the international market). The government plans to borrow an additional Hr 31 billion abroad to finance various projects. Since there is no transparent tender procedure, this money can be expected to be embezzled. Also, Hr 30 billion in loans is planned for bank recapitalization, which has been so poorly done that criminal investigations are under way into allegedly stolen money.
The government can borrow without limits. By Dec. 31, the state debt is supposed to remain below Hr 308.3 billion. However, the cabinet can borrow more. Also, the budget expects foreign investment of Hr 40 billion, European Union assistance worth Hr 522.5 million and another Hr 150 million from selling Ukraine’s unused emissions quota under the Kyoto protocol – all unrealistic expectations.
State-owned companies can borrow without limit. They can also be guarantors of such loans, with approval from the Finance Ministry and the State Property Fund or another governing state body, in contravention of other laws.
The budget law illegally cancels out other laws, contradicting numerous decisions of the Constitutional Court.
The budget gives illegal guarantees, worth up to Hr 45 billion, on construction of roads. The money is to be borrowed by the State Road Service and the National Agency for Euro 2012 [soccer championship] preparation, among other agencies. The Cabinet gives the final approval.
The budget shows that the main method of corrupt redistribution of money will be though the pretense of road building. This will become the main way of compensation to the sponsors of the election campaign. If tender procedures remain as they are, this will become an unprecedented theft of budget money. And this is all happening at a time when the government is talking about tightening belts and fiscal conservatism. Apart from the guaranteed borrowing of Hr 45 billion, the state budget’s special fund will forward more money to upkeep of roads, as well as another Hr 9 billion of foreign loans from the European Bank for Reconstruction and Development and the European Investment Bank.
The Finance Ministry receives the right to borrow and lend money at the order of the Cabinet of Ministers and guarantee loans, in contradiction of the Constitution, which gives parliament the right to approve foreign loans, as well as to approve decisions on borrowing above the limit set by the budget.
The budget has no policy for development. Most of its expenditures are administrative costs, social expenses and road building, which is traditionally one of the most corrupt activities. Pensions and social payments make up the smaller part of the budget, while administrative expenses make up the majority. The line that says “development expenditures” simply sets money aside for financing government institutions.
Bureaucracy will flourish under the budget. The parliament, for example, will receive Hr 483 million for lawmaking (that’s up by Hr 70 million compared to last year). It will get Hr 178 million (+Hr 21 million over 2009) for informational and analytical activities and various equipment. It will get another Hr 83 million (+ Hr 9 million) for servicing the Rada, another Hr 131 million (+Hr 40 million) for hospital treatment of the deputies, another Hr 90 million (+Hr 13 million) for outpatient treatment of the deputies, plus tens of millions for visits, receptions, resorts and public relations. The situation is similar with the President’s Administration, the State Management of Affairs (known by its Ukrainian acronym DUSYA), ministries and local administrations. Ministries – and Ukraine has 20 of them – spend anything from tens to hundreds of million hryvnias. Regional administrations receive from tens to several hundred millions. Almost any state organization’s budget carries articles like “applied development of management of institutions” and “scientific and methodological development of management,” each worth tens of millions. The only purpose of these articles is to cover up inflated expenses and provide enough for embezzlement.
The budget sets nothing for returning its VAT [value-added tax] debts, covering this payment by a five-year state bond. This damages export-oriented businesses. Moreover, this new debt does not show up in the final budget deficit figures, effectively increasing the hidden deficit.
The army receives an appallingly low Hr 8.8 billion through the main fund and Hr 4.7 billion though a special fund. A lot of the financing for strategically important state institutions such as the army, law enforcement and civil protection units is planned from the special budget, which is never filled. The same goes for various military pensions. This amounts to a total degradation of the army’s defense capacities. Only Hr 665 million is set aside for buying and upgrading military equipment, most of it through the special fund, which is always empty.
Land-related transactions remain non-transparent and a field of rampant corruption. Article 80 of the budget says the Cabinet of Minister is to decide the rules for selling state or communal land until a special law regulating tenders in this sphere is approved. The budget’s planned income from land sales is Hr 305 million, which is desperately little considering the actual volume of state land transactions.
The budget does not fully cover the expenses that arise from the law on social standards, which raised pensions and was the Party of Regions’ main campaign banner. The government of Mykola Azarov has promised to fully make all committed social payments. President Viktor Yanukovych promised to pay Hr 500 per each child between 13 and 18, but this promise is not covered by the budget, either.
The government received a good excuse to reduce or cancel financial assistance for newborn children, which was an important social achievement. The cabinet can now single-handedly decide.
The budget has a vague statement that salaries for government employees and other budget expenses need to be indexed, but doesn’t indicate how this can be achieved.
The budget sets a series of limitations for working pensioners.
The pension fund deficit is covered by the state budget. The fund is effectively bankrupt with a deficit of Hr 30 billion.
The final clauses of the budget were amended at the last minute by the deputies with things that concerned them most:
- increasing expenditures on the Verkhovna Rada by Hr 16.5 million;
- increasing financing for foreign trips of deputies by Hr 2 million;
- increasing other expenditures of parliament by Hr 10.6 million;
- upping financial support of parliament’s resorts by Hr 3.6 million;
- covering the activity of Verkhovna Rada on TV and radio by Hr 3.5 million;
- servicing the activities of the Cabinet of Ministers by Hr 3.5 million.
Andriy Pyshny is deputy head of the Front of Changes political party led by Arseniy Yatseniuk. He has previously worked as first deputy chief of the board of directors of Oshchadbank, deputy head of Ukreximbank and deputy head of the president’s State Security and Defense Council.
