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On the verge of impudence and opportunities: will Ukraine cope with a space hole in the state budget-2021

What's wrong with the state budget for 2021. Photo: UNIAN

What's wrong with the state budget for 2021. Photo: UNIAN

The Verkhovna Rada with 289 votes "for" voted for the draft State Budget for 2021 on December 15, 2020. The people's deputies almost returned to the tradition of voting for the state budget " on New Year’s Eve" and considered the draft law two weeks later than required by the terms of the Budget Code.

By the way, the Budget Code has also undergone changes: the deputies changed some norms by a separate law right before the consideration of the draft State Budget for 2021. This is the reason why the consideration of the latter was postponed for several more hours. But one way or another, the law was passed.

2021 State budget revenues are provided for in the amount of 1 trillion 92 billion UAH, expenses—1 trillion 328 billion UAH. The deficit in relation to GDP is 5.5% (246 billion UAH). Consumer inflation—7.3%, public debt to GDP6—4.6%.

The Page examined how the figures of the newly adopted state budget correspond to the Ukrainian reality.

"Stability" against changes: what has been changed in the draft State budget for the second reading

Prime Minister Denis Shmyhal reported that the government took into account most of the people's deputy's proposals.

"For 2021, we propose a balanced budget, which does not provide for tax increases for business and at the same time improves financing of both the social sphere and medicine, and provide support to entrepreneurs who have suffered from the pandemic," he said.

The budget deficit for the second reading was reduced from 270 billion UAH to 246 billion UAH. Expenditures will exceed revenues by 5.5%, while the Budget Code provides for a maximum of 3%. The budget deficit was reduced due to the position of the International Monetary Fund (IMF). It was necessary for Ukraine to receive loans.

"In general, 2021 budget parameters coincide with the estimates of the Fund's specialists," said the Minister of Finance Serhii Marchenko, adding that the budgetary conclusions took into account parliamentary proposals for more than 14 billion UAH.

Revenues in the 2021 State Budget of 1.08 trillion UAH from the general fund will amount to 949.47 billion UAH, from the special fund—132.23 billion UAH. Compared to the first reading, the revenue side was increased by 20.9 billion UAH. Of this, in the general fund it was increased by 13.5 billion UAH and the special fund—by 7.4 billion UAH.

These figures were revised due to proposals that provide for an increase in revenues from corporate income tax by 1 billion UAH, rent for the subsoil use by 127 million UAH, rent for the subsoil use for the iron ores extraction by 317 million UAH, value added tax from goods produced in Ukraine—by 6.40 billion UAH.

2021 State Budget shaky figures

Marchenko called this project "the budget of opportunities". In turn, the people's deputy from the "European Solidarity" Oleksiy Honcharenko called this law "a budget of impudence" and said that with such a law the government "wants to play a dirty trick."

And the People's Deputy from Golos Yaroslav Zheleznyak called the 2021 budget "space", as it has a space hole in the amount of UAH 240 billion deficit.

And the people's deputy from "Voice" Yaroslav Zheleznyak called the 2021 budget a "stratospheric" one, as it has a stratospheric hole in the amount of 240 billion UAH deficit.

As Anatoliy Amelin, co-founder and director of Ukrainian Institute for the Future economic programs, commented to The Page, the budget deficit is "too inflated," and this will lead to a debt burden increase, which contributes to an increase in the money supply and inflationary risks.

But in general, the 2021 State Budget figures are quite realistic and feasible.

"At the same time, we believe that real income will be higher by 10 billion, and expenses, if desired, can be reduced by 30 billion UAH," he added.

According to the former First Deputy Minister of Economic Development, Trade and Agriculture Pavlo Kukhta, by the second reading the income indicators were unreasonably inflated, but it is not clear where to get this money from.

«This means that there will be a constant lack of funds and they will have to be covered with borrowings. And we need $10 billion just to refinance our previous debts. That is, we will need to attract a lot of money. This means that Ukraine will again be completely dependent on external partners.»

Pavlo Kukhta

Pavlo Kukhta

Former Acting Minister of Economy of Ukraine

At the same time, the Deputy Executive Director at Center for Economic Strategy, Maria Repko, said that the government has deprived itself of the opportunity to maneuver if next year there are events that were not taken into account in the budget.

"The macro forecast included the lockdown absence, but it is supposed to be in January. Cooperation with the IMF and foreign creditors was included. And despite the changes in policy between the first and second readings, there was no macro forecast review. Although the revenues were revised. It is unclear on the basis of what these incomes are calculated, if the macro forecast is considered unchanged," she thinks.

Earlier, the head of the State Customs Service Pavlo Ryabikin, in a letter to the Verkhovna Rada Committee on budget issues, wrote that the implementation of the revenue plan that is provided for in the draft State Budget for 2021, is impossible.

Ryabikin reported that based on the dynamics of 2020, revenues from customs to the 2020 State Budget will amount to 351.2 UAH billion. The plan is expected to be unfulfilled by 31.5 billion UAH. However, the 2021 State Budget provides for an increase in revenues from customs by 37.6 billion UAH—up to 420.4 billion UAH. But next year there will be a reduction in import duty rates in accordance with the Ukraine—EU Association Agreement, and that is minus 2.6 billion UAH. Also, there are no prerequisites for an increase in the volume of taxed imports that decreased by 10.5% over 11 months of this year, compared to the same period in 2019.

At the same time, Minister of Healthcare Maksym Stepanov was also dissatisfied with the draft budget for 2021.

"We insist on the figures that we calculated in our budget request. We calculated that we need 296 billion UAH to finance medicine. This is the amount that is necessary for us to be really treated... The total amount of 159 billion UAH for medicine does not suit me."

Maksym Stepanov

Maksym Stepanov

Minister of Healthcare

Ukrzaliznytsia Chairman Volodymyr Zhmak believes that the 2021 State Budget was adopted taking into account the company's needs.

"For the first time in the history of independence, the law of Ukraine on the state budget was adopted taking into account the needs of Ukrzaliznytsia. For the first time in 29 years, the state budget provides funds for the passenger cars purchase and the railway infrastructure modernization for the passenger traffic development," he said.

And the Ministry of Finance is confident in the implementation of the 2021 state budget, the budget for 2021 is realistic and balanced.

"The budget is balanced, realistic, and we are clearly confident, the Ministry of Finance and the government, we will fulfill it, there is no doubt about that," Marchenko said at a briefing.

"We have managed to maintain the support and trust of our international partners. The evidence of this is the 600 million euros of macro-financial assistance from the EU received last week. An agreement was signed with the World Bank on additional financing of $300 million to overcome the consequences of the pandemic. Last week we announced the next issue of Eurobonds. The estimated return profitability of 6.2% is the lowest in the history of Ukraine. Investors' demand for the Ukrainian government bonds market is returning. Last week alone, the "portfolio" of non-residents increased by more than 2 billion UAH," Marchenko said.

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