So, in spite of the political turmoil, Ukraine is ringing in the new 2005 budget year in a notorious Soviet style, i.e., by creating a problem and then making heroic efforts to solve it. Indeed, on the eve of the parliamentary vote, the budgetary committee and the cabinet slaved over the budget until 6:00 a.m. This leads us to suggest that the quality of this hastily drafted document leaves much to be desired.
Introducing this country’s main financial document, Acting Premier Mykola Azarov said budgetary revenues would reach UAH 85.1 billion (up 34% from the current year). Following a discussion with the budgetary committee, the budget deficit was reduced from UAH 11 billion to UAH 8.8 billion by reducing projected privatization earnings from UAH 7 billion to UAH 4.9 billion. According to Mr. Azarov, the deficit will be used to meet increased social commitments from January 2005 onwards. The acting premier also announced that the 2005 draft budget was drawn up with due account of the 6.5- % real GDP growth in nominal terms and on the basis of an 8.7-% “cautionary and conservative” estimate of inflation. In Mr. Azarov’s view, a burgeoning economy can afford this kind of deficit at the expense of foreign and domestic borrowings. He noted that social spending accounted for more than 58% of the budget.
Leonid Kuchma has also voiced his opinion of the new budget. He congratulated the government on its passage, saying it was “the most social-oriented budget in all the years of independence.” The outgoing president seemed to be mainly guided by a desire to present the country he is handing over to his successor as one that is on the peak of economic growth. Convinced that the current year will show good economic results, he pointed out the growth of the GDP, a low inflation rate (?), and implementation of the 2004 budget. At the same time, the president called the 2005 state budget a “difficult one.” Incidentally, Ukraine’s state budget lost over UAH 2 billion during the political crisis.
Nevertheless, the opposition, which is increasingly gaining power, considers the adopted budget a forced compromise.
Petro Poroshenko, chair of the Verkhovna Rada Budgetary Committee, is certain that the passage of the 2005 state budget is not the final solution, and an updated budget will be passed before February 15, 2005, which will include essential innovations introduced by the new government and new president. He stresses that the large number of votes in favor of the budget (339) does not yet signify an evaluation of its quality. “The 2005 budget is going to be more oriented toward social and economic realities,” Mr. Poroshenko said.
Earlier, Verkhovna Rada Speaker Volodomyr Lytvyn spoke about likely changes to the 2005 budget with due account of the economic results in late 2004 and early 2005, noting that parliament and the cabinet might have “to opt for unpopular actions,” such as sequestering the budget.
In a nutshell, the prospects for this country’s new budget, even in the much-hyped social sphere, do not appear to be very attractive. As Ella Libanova, deputy director of the Institute of Demographic and Social Studies, told The Day last Friday, “the percentage of socially-oriented budgetary revenues is quite adequate, whereas the effectiveness of these expenses leaves much to be desired.”
INCIDENTALLY
Viacheslav Yutkin, president of the NRB-Ukraine Bank, believes that the very fact that the budget was passed at a time of political uncertainty is a very important stabilizing factor for this country. At the same time, he noted that passing the budget is a compromise, and some budgetary targets may be revised in early 2005 because the document was adopted without being thoroughly analyzed. Mr. Yutkin thinks that the budget reflects a somewhat overrated outlook for GDP growth, Interfax-Ukraine reports. He also predicted an inevitable economic slump in the first quarter of 2005, owing to political developments in the country. Mr. Yutkin thinks that the Verkhovna Rada will find it necessary to raise the upper limit of foreign market borrowings next year. This expert also thinks that in the first six months of 2005 banks will increase the value of loans for businesses by 1.5-2.5 percentage points because of rising public deposit rates.
