As reported earlier, the State Statistics Committee of Ukraine made corrections to 2005 GDP computations. Thus, it is estimated that last year’s GDP growth rate was 2.6 percent, with nominal GDP reaching 418.5 billion hryvnias (344.8 billion in 2004). Compared to 2004, the growth rate is 12.1 percent. However, four-fifths of it is the inflation component, with only one-fifth being the actual gross added value increment.
The substantial GDP growth in the dollar equivalent is noteworthy. Allowing for the inflation component and hryvnia revaluation against the dollar, Ukraine’s GDP has increased by 27.5 percent compared to last year and amounted to 82.9 billion dollars (65.04 billion in 2004). At the same time, Ukraine’s GDP is noticeably lagging behind Central European countries. In Poland, the nominal GDP totaled 241.7 billion dollars in 2004; in Hungary, 99.4 billion. In 2005, per capita GDP was a mere 1,764 dollars in 2005, compared to 6,226 dollars in Poland and 10,128 dollars in Hungary.
In such conditions the logic of the economic policy requires a constant increase of the GDP share being channeled into accumulating fixed capital. However, this did not happen last year. According to the State Statistics Committee, the share of gross accumulation of fixed capital in the GDP was down by four percent. Against the backdrop of world trends, Ukraine’s share of fixed capital in the GDP (21.1 percent in 2005) places it on the level of advanced countries.
However, this comparison is faulty, as our economy lags far behind in terms of per capita GDP. In the 1990s, Southeast Asian countries reached an average 8-9 percent GDP growth rate primarily due to the high share (34.5 percent GDP) of accumulated capital. Remarkably, even among some developed countries in the West the accumulation standard is almost 1.5 times higher than in Ukraine — e.g., 35.1 percent GDP in Norway (2001); 33.6 percent in Switzerland (2000); 27.3 percent in Finland (2001). In 2004, the IMF published findings predicting a world trend of accumulation rate increases; in 2005-08, it was expected to reach 24 percent GDP. In Ukraine the trend is the other way around.
An analysis of the State Statistics Committee’s GDP structure points to another negative trend: 2005 saw a substantial increase in the tax burden on the economy. Net production and import taxes amounted to 12.9 percent GDP in 2005 (the State Statistics Committee calculates the percentage of net production and import taxes as the difference between the sum total of taxes and production subsidies). Over the past several years this index has been substantially lowered and the economy stimulated. Evidence of this is the following dynamics: in 2000 the share of taxes in the GDP structure, barring subsidies, was 16.8 percent; in 2001, 13.4 percent; in 2002, 12.2 percent; in 2003, 11.3 percent; in 2004, 11.4 percent, and in 2005, 12.9 percent. Corresponding statistics indicate that, contrary to the course set on easing the tax burden on the economy, as proclaimed by the new government, a reverse trend was registered last year when the share of net taxes in the GDP structure noticeably increased compared to 2004. The share of gross profit went down; in 2004 it was 44.6 percent GDP and in 2005 it was 40.3 percent.
Published nominal GDP indices reveal the dynamics of state consumption. In 2005, the consolidated budget disbursements amounted to 141.7 billion hryvnias (28 billion dollars), or 33.9 percent GDP. This was the highest index in the past eight years; for the first time during that period the budget spending level was over the 30-percent GDP mark. On the one hand, this indicates an unwarranted increase in the governmentalization of the Ukrainian economy, particularly in terms of bureaucracy. Every percentage of budget consumption increment multiplies its scope in increasing proportions. On the other hand, the growing share of state consumption accordingly reduces the financial resources being channeled into the real economy, which does not meet the principles of its liberalization proclaimed by the new government.
State statistics prove that a reverse process is actually underway. This upsets the positive trends of previous years. Statistics show that the consolidated budget spending dynamics in terms of GDP in 2000-2005 is characterized by the following parameters: 2000 — 28.3% 2003 — 28.4%
2001 — 27.2% 2004 — 29.4%
2002 — 26.8% 2005 — 33.9%
It is necessary to take into account the fact that consolidated budget disbursements do not include those of the pension and insurance funds; these funds form their own financial resources on a state basis. Their 2005 balance sheets have never been made public. In 2004 their funds amounted to 39.1 billion hryvnias, or 11.3 percent GDP. Expert estimates show that this index has increased to 13-14 percent GDP. In view of this, it is possible to assume that the level of state consumption in Ukraine, including consolidated budget and state funds disbursements, reaches 47-48 percent GDP.
The following figures published by the State Statistics Committee are noteworthy: in 2005 the expenses of the “general state administration sector” amounted to 81.7 billion hryvnias, or 19.5 percent GDP. By way of comparison, in 2004 this sector consumed 18.1 percent GDP (62.4 billion hryvnias). Instead of energetically squeezing the state machine, resolutely reducing the number of state structures (as required by the times and as was promised from the Maidan podium), there is a process of intensive expansion. It is increasingly difficult to monitor the formation of new administrative institutions; there is no braking mechanism and everything is being done on a “revolutionary” scope, according to the “whatever-your-heart-desires” principle.
As a result, state expenses have factually become an unbearable burden on the Ukrainian economy, with nearly half of the GDP reallocated through the state finance system. International statistics indicate that the highest growth rate is registered in countries where the amount of money redistributed by the state does not exceed 20 percent GDP. The lowest rate is present where state consumption exceeds 35 percent GDP. Computations based on World Bank statistics show that in 1991-2000, 26 countries where state consumption amounted to 35-50 percent GDP averaged 1.04 percent growth rate, whereas 14 countries where state consumption exceeded 50 percent GDP registered a mere 0.95 percent.
Negative trends in the Ukrainian economy that became apparent in 2005 are not only dangerous in themselves. The problem is that the political leadership of our country (not only the government but also parliament) does not seem to realize — as evidenced by events at the start of this year — the destructive force of the consequences. Proof of this is also found in the inadequate official evaluations of the current economic situation in Ukraine, particularly those released by the Cabinet of Ministers, considering its meetings last week, as well as in the financially unbalanced “social” laws that parliament is passing conveyor-belt-style.
The total anomaly of this situation also resides in the fact that none of the politicians currently involved in implementing this political course of “economic transformations” intend to surrender their positions of power after the parliamentary elections. What will happen later? How will they solve all these problems after March 26? Unfortunately, no one is thinking about this today.
