Seminarreihe des Arbeitsbereichs Ökonomie am IOS
Zeit: Dienstag, 13.30–15.00 Uhr
Ort: Leibniz-Institut für Ost-und Südosteuropaforschung (IOS); vorerst online via Zoom, Link wird mit den Einladungen verschickt!
Forschungslabor: „Geschichte und Sozialanthropologie Südost‐ und Osteuropas“
Zeit: Donnerstag, 14–16 Uhr (Lehrstuhl) oder 16–18 Uhr (Graduiertenschule und Leibniz-WissenschaftsCampus)
Ort: WiOS, Landshuter Str. 4 (Raum 017)
Stabilisation of state budget: poor economic performance or poor governance?
Dr. Manuela Troschke, IOS
Stabilisation of the state budget is a central task of Ukrainian economic policy. In 2009, the combined general government deficit, which according to the IMF definition includes the recapitalisation of the national gas company Naftogaz, reached 8.7% of GDP, with Naftogaz accounting for 2.5% of GDP according to IMF calculations; about 2.5% of GDP for bank recapitalisation and 1% of GDP of outstanding VAT refund arrears should be added to this amount. At the end of 2009, all government debt (direct and guaranteed) had increased to 35% of GDP, and the amount of external debt including private debt peaked to 88% of GDP. By 2010, these numbers are projected to improve only slightly: under an optimistic scenario of the IMF, the budget deficit will diminish to 6.5% of GDP, whereas external debt remains at 79% of GDP (see IMF Staff Report, August 2010). During the writing of the Reform Programme the vulnerable external position of the country, high rollover risks, and essential IMF financing resulted high political commitment to meet IMF conditionalities.
The unfavourable development of state finances in Ukraine can partly be attributed to the financial crisis, but primarily it reveals strategic weaknesses of the Ukrainian budget system which had been concealed by growing tax revenues in recent years. The Reform Programme addresses some core problems of the Ukrainian budget system, namely non-effective and non-flexible spending in budget headings, the short time horizon of budget planning, steady and uncontrolled growth of budget responsibilities caused by the growing number of governmental programmes, and a poor information flow from and to budget organisations including the energy and infrastructure sectors. Other weaknesses such as inefficient and discretionary subsidisation of certain investments and sectors, and inefficient spending in the social sphere show up in the problem-solving section below. This section addresses the need to stabilise the budget, to improve spending efficiency, to improve administration of state finance and to enact accompanying reforms in the so-called basic sectors (especially state monopolies) and in the social sector.
Problem description and problem solving reveals that the authors of the Reform Programme recognise problems of the state budget rightly as problems attributed to poor governance more than to poor economic performance. A sustainable solution to this problem can be addressed only with an underlying administrative reform. Since this is beyond the scope of the Programme, implementation of foreseen steps like the optimisation of the number of state programmes and enhanced financial control over budget execution is expected to be weak before public administration reforms are enacted. Several new laws such as the Law on state procurement, the Law on state aid to the real sector, and the Law on principles of state subsidisation which are intended to overcome administrative weaknesses and problems of corruption and "state capture" are to be adopted till the end of 2012. The budget code, which introduces medium-term planning for budget preparation, has been enacted already, and implementation will be supported by the IMF. The most needed introduction of internal audits of state organisations according to EU standards, however, is envisaged only for 2014.
Regarding implementation of reform, the introduction of medium-term planning seems the most realistic step, with support from outside and clear administrative responsibilities. Weather further regulation of budget-relevant processes by law will contribute to solving the problem depends on the political will to implement and control execution of these laws. If corruption and rent-seeking activities stay unchanged and political commitment to reforms diminishes with financial relief stemming from economic recovery and IMF aid, this seems unrealistic.