2009

THE STATE BUDGET PROBLEMS

Now the state budget deficit is perhaps the most serious problem in Ukraine. It recently caused resignation of minister of finance Victor Pynzenyk, who was against too high budget deficit. The main reason of the deficit is that the state budget for 2009 is a kind of continuation of the socially targeted budgets of 2007 and 2008. it caused continuation of overblown parameters of budget-2008. In addition, this year budget is not that of economy development or even just support, but rather the way to provide wide social spending before the elections. That is the key reason why the state budget will fail. Main state budget difficulties are its revenues execution, with the execution level of 60%-80% now. This process will continue, so we estimate the deficit gap for 2009 as UAH 30 bn to UAH 62 bn, or even UAH 71 bn. The latter volumes correlate with the most pessimistic forecasts in parliament and by the president, while average value will stand for amount of foreign borrowing, which the government has declared to undertake. Misbalance in the state budget will be increased with fulfilment problems of the Pension Fund and local budgets. The government will try to help them, but this will worsen the overall deficit background. There are not too many ways to liquidate shortages in the state budget. Selling binds at external markets is problematic because of their low ratings and insurance opportunities. A few investors are ready to buy state bonds at domestic markets. Increasing taxes is unpopular and causes the waves of protests. The way to arrange the large foreign borrowing is too risky under current conditions of recent increase of the state debts. So the government will have to reconsider the budget at least every quarter to cut expenses. Besides, the government has to take into account recent real total fall in economy, at least a third, to correct its budget plans with such a rate. Most probably the reasonable policies will be performed by the government just partly, so this can cause the state budget failure.