Editor’s Note: Oksana Markarova was replaced by Ihor Umansky on March 4 as Ukraine’s finance minister. Markarova held the post since November 2018. This is translated by Kyiv Post staff writer Olena Goncharova from Markarova’s farewell post on her Facebook page.
There are opportunities that are almost like a call to action. I happened to get one in November 2014 when Natalia Jaresko asked me to join the Ministry of Finance. At the time, I had 17 years of experience in the economic sphere and investment business, as well as a master’s degree in public finance from Indiana University. So I agreed to work for Ukraine – for a year or two. This is how my service began, which lasted almost five years.
Today, the parliament has elected a new government, so I am finishing my job at the Ministry of Finance. Here is what I pass on to my successor:
1. Sustainable economic growth and responsible budgeting
We managed to avoid a default, stop the economic downturn and ensure gross domestic product growth for 16 quarters in a row. For four years now we have been adhering to the budget code. The draft budget proposal, with all annexes, is submitted to parliament on Sept. 15 and is under discussion with the budget committee and parliament. This is what allowed us to approve the budget in November twice in a row – in 2018 and 2019.
We have reduced the state budget deficit from 4.9 percent of GDP in 2014 to about 2 percent of GDP in 2019 and 2020.
The Ministry of Finance carried out budgetary and fiscal decentralization, thereby supporting the administrative reform still underway in Ukraine. As a result, local budgets have grown from $68.6 billion in 2014 to over $300 billion in 2019 (almost five times), as well as provided opportunities for fundraising.
At the legislative level, we have introduced verification of social benefits to protect social assistance from theft and fraudsters and to ensure support for those who need it.
2. Transparent public finances
In 2015, my team opened all Treasury transactions on the www.edata.gov.ua portal. In 2016, we adopted the transparent budget concept, and from 2018 the portal www.openbudget.gov.ua was launched, where we opened all details of the budget process and budget data. There is also information available on local budgets.
In 2019, the portal www.proifi.gov.ua started its work. It regularly updates information about projects that we implement at the expense of international financial institutions.
In addition, we have launched a unique tool called BOOST, which allows retrieval of diverse analytics on budget data, and there is a dashboard with spending on secondary and higher education.
This allowed not only citizens and journalists to monitor the government, but also the government to be more accountable and effective.
3. Medium-term budgeting
Medium-term budget planning has been around since 2000, but it has not been implemented by 2014 because there was neither the political will nor the human capacity to do so.
This became my idée fixe and in 2015 we at the Ministry of Finance started working on a concept in which we were assisted by international experts and partners. In 2016, it was presented and approved by the government. In 2017, we prepared a pilot three-year budget resolution.
Parliament approved amendments to the Budget Code, which provided the full implementation of medium-term budgetary planning and defined a three-year budget declaration as an important strategic document of the state on December 6, 2018. We have prepared the Budget Declaration for 2020-2022 and submitted it to the Cabinet of Ministers, but unfortunately, due to last year’s political processes, it was not approved.
However, we have already introduced important elements. For instance, budget requests are submitted for a three-year period, and fiscal risk reports have become an integral part of the 2020 budget draft. This is the new standard of budgeting that Ukrainian citizens deserve.
4. Anticipated debt policy and unprecedented reduced cost of borrowing
My team has developed and approved a Medium-Term Debt Management Strategy, built on a quality diagnosis of the situation (the debt was short-term, expensive, had too high a level of GDP and high currency risk) and contains a clear plan to correct these problems.
The implementation of the strategy allowed us to:
– reduce the cost of debt instruments to 10 percent
– interest rates on foreign currency bonds decreased to 2.22 percent in euros and 3.4 percent in dollars, which is the lowest in the history of modern Ukraine.
In January this year, we successfully entered the Eurobond market with securities in euro and borrowed 1.25 billion euros for 10 years at the lowest rate in the history of modern Ukraine – 4.735 percent.
We have established honest investor relations and have already upgraded most of our ratings to at least one position. If the budgetary policy of the government and the Ministry of Finance and cooperation with the IMF remain at the same high level, this is not the limit.
5. Strong and equal relations with international financial partners
The Ministry of Finance has completely restructured the processes of reviewing and agreeing on projects that we are implementing at the expense of international partners. Last year, we surpassed 1.1 billion euros in EBRD funding for projects agreed in 2019 alone. These are additional cheap long-term funds that are available to public companies, private businesses, municipalities, and local communities for transportation, infrastructure, energy efficiency, and many other projects, including small and medium businesses. Such investment projects will contribute to economic growth in the medium and long term.
The IMF has been and remains a reliable partner of Ukraine, which has provided financing for the country at difficult times. Now it is ready to continue to actively assist in the implementation of reforms, fiscal consolidation and competition, which should accelerate economic growth and improve the well-being of Ukrainian citizens. A new $ 5.5 billion three-year EFF program was agreed at the staff level at the end of last year: most previous actions have been completed.
We also have arrangements with other official lenders that can close almost all of Ukraine’s financing needs this year, so as not to resort to market borrowing that may not be affordable at the global crisis, which is set against the backdrop of the coronavirus epidemic.
6. Real reform of the tax service and customs
In addition to the development of authorized economic operator laws, a common transit regime, about 20 general tax clarifications, two dozen international agreements and conventions on double taxation, which we have brought into line with the OECD Convention, the Ministry prepared the basics of the State Fiscal Service reform.
We split the institution into separate Tax and Customs services, held transparent contests for their heads, where people from outside the system won, and we started rebooting the services.
Coordinated and high-profile attacks by corrupt officials, converters, smugglers and money launderers have just confirmed that we are on the right track.
I very much hope that the new minister will not shy away from this fight and will not compromise. Transparency and fair tax paying will reduce the tax burden on citizens and businesses and continue to reduce redistribution through the budget we started in 2018, which is still at an unacceptably high level.
7. State-owned banks are market-based instruments for financing the economy
Today Ukraine owns stakes in four banks, which is about half the nation’s banking system. We believe that the state’s share needs to be reduced, so we have approved and are implementing the Public Sector Banking Reform Strategy, which we plan to update soon to meet new requirements.
In each of the four state-owned banks, an independent supervisory board is formed, strategies for each of them are approved in the medium term, and the reports are publicly disclosed on the Ministry of Finance website.
According to the results of 2019, public sector banks’ profit reached a record Hr 35.2 billion (2.4 times more than in 2018), the deposit base is growing (the volume of corporate sector deposits increased by 27.6 percent or Hr 54.1 billion, by individuals – by 5.5 percent, or Hr 17.6 billion.) This, together with the reduction of the National Bank’s discount rate, allows reducing the cost of resources for lending to the real economy.
8. Several creative strategically important projects
UkraineInvest was created to attract and support investment in Ukraine. It was launched with donor funding and then institutionalized, and is now an active investors’ partner.
We created a startup fund with a supervisory board and market experts who, according to best practices, select early-stage projects for grant funding, and this year has already given over $4 million to the first winners.
A joint program of the Ministry of Economy affordable loans 5-7-9%, launched through the entrepreneurship support fund, has already supported dozens of entrepreneurs for a total amount of Hr 66.11 million since March 1.
9. Progress in cases against Russia
The Finance Ministry and our legal team have reached a positive decision in the London Court of Appeal, which allowed Ukraine to defend itself against the non-payment of the so-called $3 billion debt at the British Supreme Court. Also, international arbitration in Paris has made an unprecedented decision to recover $1.3 billion from the Russian Federation in favor of Ukraine’s Oschadbank (The State Savings Bank of Ukraine).
10. Institutionally strong Ministry of Finance
In five years, we have strengthened the Ministry of Finance with professional deputies and new team members, as well as best management practices. Today, the Ministry of Finance and all those under our umbrella – the State Fiscal Service, the State Customs Service, the Office of Financial Control, the State Treasury and the State Financial Monitoring – are capable of ensuring the fulfillment of all budgetary tasks of the country. Our work in the second half of 2019 and the first two months of 2020 has shown that even in the face of dramatic changes in the macro-situation, we are able to respond adequately and quickly within the Budget Code and to ensure that all expenditures are properly financed.
Of course, these are not all the positive changes that have been made in five years, because I was lucky enough to work in the best of ministries (let my colleagues in the Cabinet forgive me). The Finance Ministry staff is the elite of the civil service, and it was an honor for me to work with each of you, although I did not say it daily and it was probably too demanding at times. Thank you and I believe that you will continue to do your job honestly with a new team of executives.
For my part, I promise to help you as a caring citizen and taxpayer. Because there are principles that remain the same regardless of positions and places of work.
