Ukraine’s parliament approved a 2017 budget early on Dec. 21 — as usual, early in the morning after an all-night discussion. It envisions national spending of $29.8 billion on revenues of $27.2 billion.
The 5 a.m. vote left some members of parliament complaining that they didn’t have time to read it through.
Oleksandra Betliy, leading research fellow at the Institute for Economic Research and Policy consulting, told the Kyiv Post that it’s hard to comment on the budget, as lawmakers made many changes during the night to the budget and tax codes, along with the amendments to the budget itself.
Messy vote
Lawmakers had to pass some amendments without having a chance to examine them on the paper before the vote. Some amendments have been put up for voting for several times during the night. The full text of the 2017 budget has not yet been published.
According to the official website of Ukrainian parliament, gross domestic product is expected to increase 3 percent in 2017, while inflation is projected to be only 8.1 percent.
The budget deficit will fall from 3.7 percent of GDP this year to the International Monetary Fund-required level of three percent in 2017.
However, the numbers might shift, Betliy said, as the budget for 2017 was passed without accounting for several changes to the budget and tax codes, as well as other legislature, made during the night.
Executive Director at Centre for Economic Strategy Hlib Vyshlinsky told the Kyiv Post he believed the votes were arranged in such a haste to smuggle some rulings that are lucrative for different political forces — to pay them off for supporting the budget.
As an example, Vyshlinsky mentioned the creation of the Export Credit Agency that the Radical Party has been lobbying for for a long time. Grateful for the move, 18 of 21 members of the faction supported the budget.
Oleh Lyashko, leader of the Radical Party, said in his Facebook post that his faction voted for the budget because of increases in minimum wage and pensions.
Budget risks
The 2017 budget doubles the minimum wage to Hr 3,200 ($121) per month starting from Jan.1, 2017. To accommodate this, both revenue and spending rose by about $570 million.
Extra revenues are expected from value-added tax, personal income tax, and dividends from the National Bank of Ukraine.
According to the analysis of the budget draft, prepared for the second reading vote, published on the website of the Centre for Economic Strategy, this move “might shock the economic agents, and it’s hard to predict their reaction.”
The most probable effect, document says, is that the expenditures of the businesses will grow, while revenue will decrease. There is the risk that, instead of increasing the salaries to the new minimum level, employers will cut the working hours of their staff or even dismiss people.
Budget draft suggested that $397 million will come from the confiscation of the assets, received through corruptive schemes. However, the exact amount of those assets are not defined, as well as the terms when they have to be expropriated. In case this budgetary provision lacks financing, some depending on it expenditure — like defence and roads repairment — will be cut, or the government will have to find other sources to finance them.
Another risk is the budget revenue that should come from privatization – about $640 million. According to the CES estimates, at least half of the sum seems illusive.
According to Oleksander Paraschiy, head of research at Concorde Capital, “the final spending plan is more or less in line with numbers previously reported to the public.”
“The revenue target still looks realistic even after it was revised to accommodate the higher minimum wage. It’s positive that budget was approved before the new year, that decentralization is continuing and tax administration reform is progressing,” said Paraschiy.
IMF tranche
In Paraschiy’s words, the budget’s approval, along with the nationalization of the PrivatBank that was announced by Ukraine’s government on Dec. 18, “will enable Ukraine to receive a $1.3 billion IMF tranche as early as January.”
However, the latest IMF memorandum from September contained other demands from the Fund, most of which Ukraine still has to fulfill.
Among those requirements that Ukrainian authorities have already failed to fulfill in time were to design legislation on the market of agricultural land, set up the mechanism of the utility tariffs adjustment, as well as publish the full list of the state enterprises with the estimation whether or not each of them have or have not to be privatized.
By the end of the year Ukraine’s parliament and government have to carry out the pension reform, as well as to merge the tax and custom services.
Kyiv Post staff writer Alyona Zhuk can be reached at [email protected]. Kyiv Post staff writer Isobel Koshiw contributed reporting to the story.
