In a dramatic 30-minute speech today, Ukrainian Prime Minister Arseniy Yatsenyuk asked parliament to support a range of belt-tightening measures for the nation to stay solvent and overcome the after-effects of the looting by overthrown President Viktor Yanukovych and his team.
“If the country were a commercial entity, we would be bankrupt,” Yatsenyuk said, adding that the nation will be some Hr 289 billion in the red this year, or $26 billion at the current exchange rate, an enormous figure considering the national budget is only about $50 billion.
Yatseniuk’s government suggested a package of laws that would help to meet the financial and economic challenges, and parliament is expected to vote on these suggestions later in the day. The prime minister predicted that the nation’s gross domestic product will drop 3 percent this year if parliament accepts the austerity measures, and 10 percent if it does not.
The measures were agreed with the International Monetary Fund, which on the same day announced that it reached a staff-level agreement for a $14-$18 billion, two-year loan program for Ukraine. A board decision is expected next month.
The agreement will unlock support from the broader international community that amounts to $27 billion over the next two years, Nikolay Gueorguiev, IMF mission chief for Ukraine, in his statement.
But the financial assistance requires a number of austerity measures from the nation to rein in budget expenditures, increase tax collection, combat corruption and implement structural reforms in key sectors. Yatseniuk said that the previous government blew $20 billion on supporting an unrealistic exchange rate, and allowed $70 billion of capital to be siphoned off to offshore zones.
Yatsenyuk also slashed his predecessor Mykola Azarov’s government for poor budget planning. “The country was falling, and they showed that there was economic growth. The industry reduced, while they showed growth in the industry,” Yatseniuk said.
To finance itself, the previous government borrowed some $37 billion through various means, pushing the debt-to-GDP (gross domestic product) ratio to a critical level.
However, Yatsenyuk said the government’s austerity measures will allow the nation to navigate the troubles. “Ukraine needs to move on to tough and unpopular reforms, which should have been done many years ago,” he said.
Yatsenyuk said the government proposed a number of tax hikes, including taxes on oil and gas extraction, as well as tobacco and alcohol excise.
“A bottle of beer used to cost Hr 8, after the new excise it will be Hr 8.5. A bottle of vodka Hr 32, and will cost Hr 35. If someone has better idea – let the government know. You should drink less and do more sports instead,” Yatsenyuk said.
The prime minister also said the rich will pay more, but no tax on cash deposits will be introduced in 2014 to avoid capital flight.
“However, 1.7 percent of rich Ukrainians should pay taxes at last, so the other 98 percent of our citizens will see that social equality exists,” Yatsenyuk said.
The government also plans to sell off 95 percent of its car park, and recreation infrastructure nationwide that has been financed by the taxpayers for decades, and used exclusively by the authorities. Yatseniuk said government dachas and sanatoriums will be auctioned off, and former presidents and other top officials will now have to foot their own gas bills and pay for their own guards.
Other privileges, such as excessive pensions for former judges, prosecutors and other government employees, will be reduced, and so will the number of state officials in government’s executive agencies.
“We are downsizing about 24,000 out of 249,000 officials,” Yatsenyuk said.
He also announced that the broader population will see gas tarriff hikes as of May. The government expects Russia to hike its gas supply prices to Ukraine ad of April to $480 for 1,000 billion cubic meters, up from the current $280.
Yatsenyuk said that Ukraine’s population was paying some of the lowest gas prices in the region. He said on average consumers are billed $84 per 1,000 cubic meters of gas, while their neighbors in Russia are footing $128 per 1,000.
“We have to level up the price for energy products so the country won’t end up as a bankrupt,” Yatsenyuk explained. He promised compensations for needy families through what he described as “the most comprehensive program” Ukraine has had yet. He said up to 4 million families, or 30 percent of the nation, will get up to Hr 500 per month in subsidies for gas bills.
IMF’s Georguiev said in his statement that the government’s new economic reform program is needed “to restore macroeconomic stability and put the country on the path of sound governance and sustainable economic growth while protecting the vulnerable in the society.”
“The program will focus on reforms in the following key areas: monetary and exchange rate policies; the financial sector; fiscal policies; the energy sector; and governance, transparency, and the business climate,” he said.
Kyiv Post staff writer Olena Goncharova can be reached at [email protected]
