Balanced 2017 budget to secure macroeconomic stability in Ukraine – Minister for Economic Development and Trade

Balanced 2017 budget to secure macroeconomic stability in Ukraine – Minister for Economic Development and Trade
October 21, 2016.

State budget 2017 is discussed publicly to form a balanced budget at the end. Experts and authorities note the importance of public investment and public procurement under the new budget.

Kyiv, October 20, 2016. Public investment into Ukrainian economy budgeted for 2017 is small – eight per cent. However, the balanced budget will help achieve macroeconomic stability as well as economic growth, said Stepan Kubiv, First Vice Prime Minister of Ukraine, Minister for Economic Development and Trade speaking at a press-briefing at Ukraine Crisis Media Center. “Budget tools set to secure economic growth are investment projects, equal opportunities and public procurement. Non-budget tools include deregulation and increase of efficiency of the state-owned companies,” he noted. He said that according to the forecast the GDP will increase by three per cent, inflation by 8,1 per cent, unemployment rate by 8,7 per cent.

Profitability of state-owned companies, new jobs and defense are government’s priorities

“The 2017 budget needs to demonstrate its advantages thanks to re-focusing on development of state-owned companies, creating new working places and privatization of state-owned companies,” said Kubiv. He reminded that there are over 3,500 state-owned companies in Ukraine, while economy’s public sector constitutes 16,5 per cent. In case the measures succeed, modernization, increase of efficiency, elimination of corruption and privatization will lead to considerable growth of the GDP. According to Stepan Kubiv not more than 20-30 per cent of companies need to be left state-owned. Hlib Vyshlinsky, executive director of the Center for economic strategy, added that it is important that these companies manage their income on their own and invest it into quality projects.

Defense sector will be one of the priorities as well: expenses foreseen amount to five per cent of the budget or UAH 129 billion. “This money will be directed almost in full to the development of the defense sector including weapons and military equipment. It will also stimulate development of companies in the defense sector,” noted Yuriy Brovchenko, Deputy Minister for Economic Development and Trade of Ukraine. These expenses are foreseen for “Ukroboronprom” and private companies that will be working to produce the state order.

Social benefits, transportation and environment will be target of public investment

Stepan Kubiv said that the budget foresees public investment in the amount of UAH 1 billion. Sixty one per cent is to be invested into healthcare, 10 per cent in social security and culture, 25 per cent in transportation and four per cent in environment protection. According to Hlib Vyshlinsky infrastructure needs to be the priority: its current condition cannot satisfy the requirements of business including metallurgy, agrarian and chemical industries. “We need to develop and correct the infrastructure, our trade flows have considerably changed – there is a decrease in the east, an increase in the south and in the west. The infrastructure was not designed to meet these needs,” he explained.

Cooperation with international financial institutions will help develop the sector. The institutions are offering the loans on beneficial terms, moreover procurement in such projects is controlled by international organizations. Public-private partnership may become another factor to enhance development, starting from the next year it will be implemented in infrastructure-related projects. “It is an instrument that will allow stabilizing the budget and will enable socially active entrepreneurs to assume part of the state’s functions in a quality manner.

International experience: public investment and procurement are key for GDP growth

Hlib Vyshlinsky noted that according to the latest research conducted by IMF experts, public investment and public procurement have highest impact on the GDP growth. Over the previous years in Ukraine the attitude towards state investment projects was quite skeptical due to the high corruption level. Now as the e-system for public procurement ProZorro is operational, the situation will start changing for the better. The expert noted that in any case these need to be “thoroughly selected projects”.

Three pillars of the EU economic policy: public investment, structural reforms and macrofinancial stability

Taras Kachka, Deputy Executive Director, International Renaissance Foundation, noted that among the pillars of EU’s economic policy are strategic public investment and structural reforms. “Many reformative laws were adopted in Ukraine in 2014-2015. It is now important that the laws survive and get implemented, respective expenses are required,” he noted. It concerns reforming of the defense, law enforcement system, judiciary, education and healthcare. Kachka also noted that the above sectors are financed under the current budget.

The third pillar is macrofinancial stability when the deficit of the state budget would not exceed three per cent. “We have finally reached an expert consensus that we rather need stable finances than radical decrease of the tax rates that is going to unbalance the budget. […] Stable economic situation is much more important for long-term projects,” Kachka noted. He also added that sometimes big budget expenses are an important motivation for economic growth. “From this standpoint even if the budget is not perceived as evolutional, its meaning for economy can be more positive than any radical changes,” he summarized.

Open public discussion is a peculiarity of the 2017 budget

“What makes the 2017 budget different from the previous ones is the fact that it is being publicly discussed. It is being discussed by heads of all civic councils in all the ministries, we can see the numbers and affect the process,” noted Oleh Platonov, head of the civic council under the Ministry of Economic Development and Trade of Ukraine. He added that in case this public approach will continue to be applied and the gradual separation of functions between the state and private business will continue, the budget in the future “will look totally different.”

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