The Zelenskyy Government Priorities: Debts and Defense
18 September, 2019

The recent presidential and parliamentary election campaigns run by the Servant of the People party often drew criticism that it was low on details and long on rhetoric. But now the numbers are coming in, and the new administration under Prime Minister Oleksiy Honcharuk is filling in the gaps. The government’s submitted budget for 2020 reveals just where the new government is setting its priorities.

Expenditures Rise While Growth Expectations Fall Short of Rhetoric

In total, the 2020 budget is estimated to receive 1,079.5 billion hryvnia ($43.56 billion) in income, with expenditures of 1,170 billion hryvnia ($47.23 billion), resulting in a deficit of 95 billion hryvnia (3.84 billion) or 2.09% of GDP. 

The Ministry of Finance expects GDP growth of 3.3%, despite PM Honcharuk’s promise of 7% growth in the first year, though the Ministry of Finance noted that these estimates are based on the previous government’s predictions, and do not take into account incoming reforms, such as the lifting of the moratorium on land sales. Inflation is also projected to slow from 7.4% the previous year to 6%.

Where The Money Goes

Debts: Ukraine owes approximately 351 billion hryvnia ($14 billion) to international finance organizations, including the IMF, with $6 billion due in 2020. The government has allocated 145 billion hryvnia ($5.88 billion) for debt payments in 2020, while total debt payments in 2020 will total 438.1 billion hryvnia ($17.76 billion).

Military: It’s no surprise that the government is privileging national security with the biggest slice of the government pie, as the war in the Donbas rages on into its sixth year. Military spending increased by 33.8 billion hryvnia ($1.36 billion) to 245.8 billion hryvnia ($9.9 billion). The biggest portion of funds will be granted to the Ministry of Defense, closely followed by the Ministry of Internal Affairs.

Social: Social policies and welfare also make up a good portion of the budget, with about 10% of the budget, 172.6 billion hryvnia ($7 billion), allocated for pension payments. Pensions are also projected to increase by 8% over the course of the year, from 1,638 hryvnia ($66.40) to 1,769 hryvnia ($71.71), and the minimum wage will be boosted to 4,723 hryvnia ($191.45). Subsidy reform, long a priority for Ukraine’s international creditors, may start to see progress as utility subsidies are decreased by 7.4 billion hryvnia ($300 million) from the previous year to 47.6 billion ($1.9 billion). Despite this, Finance Minister Oksana Markarova has stated that “Anyone who needs a subsidy will be able to receive it.”

Medical: Medical spending will rise to around 108 billion hryvnia ($4.3 billion), 10 billion hryvnia ($405 million) higher than the previous year. The rise in spending is expected to assist in continuing medical reforms started by the previous administration, including the financing of hospitals and clinics via service charges, instead of available patient slots.

Education: 136.4 billion hryvnia ($5.5 billion) is allocated to the Ministry of Education, an increase of 7.7 billion hryvnia ($312 million) on the previous year, with plans to improve teacher and educator qualifications, as well as create a national qualification exam system for higher education professionals. 

Infrastructure (roads): Ukraine’s road system have long been fodder for jokes and criticism for Ukrainians, and it seems the new government is responding by setting aside 74.4 billion hryvnia ($3 billion) for road infrastructure, with 67.9 billion hryvnia ($2.8 billion) earmarked for the Road Fund. The government will also seek additional financing from international bodies.

Additionally, the budget has set aside 12.1 billion hryvnia ($490 million) for culture and sports spending, 4.4 billion hryvnia ($178 million) in agricultural subsidies, with a focus on smaller and family farms over agribusiness, and 2 billion hryvnia ($81 million) on strengthening Ukrainian energy independence from Russia.

A Minimum of Pork

The budget will still have to go through three hearings before it is adopted, and revisions are expected. But this year, thanks to the majority enjoyed the Servant of the People party, budget negotiations are forecasted to go much more smoothly than before. Budget negotiations became infamous in previous years as minority and coalition MPs stuffed the bill with their own personal projects, which were often poorly-hidden transfers of wealth from the budget into their own pockets.

However, with the new mandate given to President Zelenskyy and his party, they will be able to pass the budget bill, like most legislation, with a minimum of input from other parties. The finalized version of the bill is expected on November 2.

/By Romeo Kokriatski