Ukraine Cabinet decides to reduce MinFin authority, media report

The Ukrainian government approved two resolutions on May
25 to significantly reduce the Finance Ministry’s authority, the dt.ua website
reported next day. Namely, the Cabinet decided to exclude MinFin from the
process of approving any Cabinet acts (all government decisions previously
required the approval of MinFin, as well as the economy and justice
ministries). Second, the Cabinet ruled to take control of the State Fiscal
Service – responsible for tax collections – away from MinFin.

Removing MinFin’s veto will enable the ministries to
more freely distribute their expenses, or even inflate them, according to the
dt.ua report. With the fiscal service’s subordination to the Cabinet (i.e. PM
Volodymyr Groysman) “nobody will prevent Groysman from managing fiscal flows,”
dt.ua reported, hinting that its current head is a close friend to Groysman.
Indeed, Myroslav Prodan, the service’s acting head, had worked in the fiscal
service of Vinnytsia, the city where Groysman served as mayor in 2006-2014.

The Cabinet adopted its rulings after Finance Minister
Oleksandr Danyliuk had left the meeting. Before he left, he asked Groysman to
appoint a new MinFin deputy head, which Groysman refused to do, media reported.
Danyliuk wanted to appoint Yana Bugrimova as deputy minister responsible
reforming the fiscal service, according to dt.ua. Groysman is also considering
dismissing Danyliuk, dt.ua wrote, with the most likely replacement as Nina
Yuzhanina, a close ally to Petro Poroshenko and head of parliamentary committee
on fiscal policy.

Alexander Paraschiy: As a
technocratic finance minister who has striven to maintain strong fiscal
discipline, Danyliuk has earned the disfavor of both Groysman and Poroshenko,
who are tempted to raise fiscal outlays ahead of the 2019 elections. Therefore,
we see his replacement for more loyal figure as possible, but only after
Ukraine gains the next IMF tranche.

From the economic side, the key risk in replacing
the finance minister is the widening of public spending and the budget deficit,
which may add inflationary pressure and result in monetary policy hardening by
the central bank in late 2018. In turn, this may further limit economic growth
in subsequent years and aggravate Ukraine’s sovereign debt risks.