With dreams of cheap gas supplies almost gone, Ukrainian government started its budget run and finished it in record time. The budget bill for 2012 was sent to Verkhovna Rada on December 22, and MPs considered and adopted it on the same day. Finance Minister Fedir Yaroshenko’s revised macroeconomic forecast in the budget law looks quite attractive and apparently places our country among the leading economies of the world.
According to the conservative scenario that has been amended to take into account the 416-dollars-per-1,000-cubic-meters natural gas, Ukraine’s GDP will grow by 3.9 percent in 2012, and the guaranteed subsistence minimum will increase by 128 hryvnias from the preceding year, the increase being almost twice as fast as forecast consumer inflation. In addition, the bill provides for the 20 percent raise in teachers’ wages, establishing recreation allowances for doctors and pharmacists, and increase in pensions and various benefits, including those for “rebellious” Chornobyl veterans. Simultaneously, the minister promises that “the investment potential of our tax forgiveness will be over 45 billion hryvnias,” while total flow of budget money into the real sector will reach 120 billion hryvnias in 2012, according to Yaroshenko.
Apparently, even the conservative budget bill shows that the nation is well-resourced still. But what is the actual situation now? Is this document an indication of the government going on the campaign trail and ready to use all its remaining resources to win, from the new simplified wave of privatization and to the National Bank of Ukraine’s reserves? (According to the First Deputy Chairman of the NBU Yurii Kolobov, the central bank plans to contribute 9.6 billion hryvnias to next year’s budget.) But the main contributors to the budget, as always, will be businesses, which will suffer disproportionately from high natural gas prices. The prices likely will not stop at 416 dollars.
Independent energy expert Valentyn Zemliansky forecasts that they will stand at 456 dollars in the first quarter of 2012. “It will be a very difficult time,” he says. With this knowledge, one cannot help but harbor doubts about the government’s good faith in balancing its budget bill. It is possible that it is acting according to the old formula, whereby a poorly-thought or hard-to-implement budget law is still better than the absence of any budget. Similar opinions were expressed recently by a Party of Regions MP Dmytro Sviatash as well as the NBU’s leadership, which predicted three billion dollars balance of payments deficit for this year and thus provoked questions about how much this deficit will increase in 2012 with annual average price of imported natural gas standing at 419 dollars.
However, President Viktor Yanukovych suggests that the cost of servicing public debt will decrease by 38 billion hryvnyas in the coming year... It would be nice, of course, but is not it too early to guess? Nobody knows how exchange rates will move next year, including those of currencies Ukraine owes its debts in. Another example is the president’s hope that budget revenues in 2012 will grow by 100 billion hryvnias. But the World Bank is of different opinion. It forecast Ukraine’s GDP growth at more subdued 2.5 percent in 2012. According to the World Bank senior economist in Ukraine Ruslan Piontkovsky, “our base scenario assumes the economic growth slowing down to 2.5 percent in 2012, as Ukraine has entered the period of reduced external demand, more difficult access to financing and turbulent international markets.”
“A key element of this scenario is the rapid return to co-operation with the International Monetary Fund,” Piontkovsky said. However, the president seems to ignore the key requirements of the IMF to increase gas price for population, as the elections loom. One can only envy his stubbornness and optimism, as well as Prime Minister Azarov’s “flexibility” when swallowing Putin’s insult at the last meeting with him when the Russian strongman remarked about Ukrainians “sucking Russian blood.” Why did not he recall, as our president did at his final press conference this year, that this country pays Russia a billion dollars for natural gas every month, and twelve billion every year? This is the main reason for our trade and budget deficits. And who is the real vampire here, then?
