The Cabinet of Ministers is preparing to economize in 2015

Photo: Reuters

Due to expectations of weak economic growth the regional and social policy of the government of Ukraine next year will be strictly economized.

The government is anticipating that in 2015 revenues of local budgets that are taken into account for determination of transfers will remain practically at the same level as last year at UAH 65.1 bn. Planned expenditures are UAH 122.9 bn. Such figures calculated for the national budget of 2015 relate to inter-budgetary relations and local budget revenues (Capital has a copy of the document).

As a reminder, in 2014 both revenues of national and local budgets declined. Specifically, revenues that factored in transfers this year compared to the previous year fell by UAH 7.5 bn.

Uneven forecasts

According to calculations of the Ministry of Finance, the volume of subsidy leveling will increase from UAH 60.5 bn this year to 60.8 bn next year. Among the top three oblasts that will receive the highest amounts are the Lviv oblast (UAH 4.2 bn), Donetsk oblast (UAH 3.9 bn) and Odesa oblast (UAH 3.3 bn). The Kirovohrad, Dnipropetrovsk and Sumy oblasts will receive the lowest amounts of subsidies (each of them — UAH 1.7 bn).

In certain spheres the government expects not to increase expenditures. For example, the forecast volume of expenditures to support local self-governments that are used in determining transfers is proposed to be maintained at the level factored into the national budget of 2014 at UAH 3.6 bn. Expenditures from education are planned at UAH 63 bn, healthcare — UAH 42.1 bn, social security — UAH 5.3 bn and culture and art — UAH 7.7 bn.

In the opinions of experts, the planned indicators weakly reflect the realistic financial status of the regions. According to the conclusions of the Association of Cities of Ukraine (ACU) that Capital possesses, the fact that the number of children of the pre-school age in cities is constantly rising and that additional funds are required to support them is not factored into these indicators.

In addition to that, expenditures associated with the rendering of social services of resettlement from eastern regions of the country are not factored into the indicators presented by the Ministry of Finance. «In learning institutions of Kyiv only more than 3,000 children were accepted and there is no decision on additional resources,» read the conclusions of the ACU.

Social imbalance

In 2015 the Ministry of Finance plans to raise the minimum wage twice: as of January 1 — to UAH 1,257 and as of December 1 — to UAH 1,284. However, there may be an irregularity in the paying out of wages at the regional level.

According to calculations of the ACU, the deficit of financial resources for fulfilling the powers delegated by the government in 2015 is planned at approximately 17%. The budget sphere is provided for at 82.9%, physical education and sport — 33.5% and public state administration — at 41.8%, according to the conclusions of the ACU.

Judging from this, there is a high probability that the situation in previous years when in Q4 employees on the budget payroll were not paid and in cities across Ukraine there was a shortage of money to pay for municipal services and electricity bills will be repeated.

In such cases, local authorities traditionally conflict with the Ministry of Finance, which sometimes finds the money via redistribution of budget expenditures and sometimes local authorities find a solution to problems at the expense of loans from the treasury or funds of the city budgets.

Hopes for inflation

Expert of the International Center for Policy Studies Oleksandr Zholud says the level of revenues of state and local budgets will be determined by two factors — the pace of GDP growth and reform of decentralization. The first factor will depend on how the military conflict in the eastern part of Ukraine unfolds. The continued intervention of Russia on the territory of Ukraine and an end to military actions in the nearest months purport absolutely different economic scenarios.

«Our center based its forecasts on the fact that this year the central government will maintain control over the situation and next year it will be able to begin restoration of the region and the economy on the whole. We anticipate that GDP growth in 2015 will be 3% and the high level of inflation will lead to an increase in nominal revenues of the national budget by 6-10%,» said Zholud.

As for reform of public finance, judging from the indicators factored into the budget for 2015, which do not differ that much from this year’s figures, the Ministry of Finance is not taking into account the drafting of an estimate of expenditures for decentralization, Zholud presumes.

It was planned that the Verkhovna Rada would review and adopt in the first reading the government bill on reform of public finance (No. 4435a) at its last plenary session from August 12-15. However, not enough votes were garnered in the session hall even for inclusion of the document on the agenda. Now its review is planned for early September.

Aside from that, the Cabinet of Ministers is drafting a program for recovery of the economy by 2016. First Minister of Development and Trade Anatoliy Maksyuta says the ministry is currently wrapping up the drafting of this document. It will be presented at an investment donor conference planned to be held this fall.