Ukraine MinFin suspends financing of “unprotected” budget items

Ukraine’s Prime Minister Oleksiy Honcharuk ordered the
Ministry of Finance to suspend payments on “unprotected” budget items through
the end of 2019, the Interfax-Ukraine news agency reported on Dec. 19. This
decision is intended to prevent the budget deficit from exceeding plan,
Honcharuk said. The government emphasized that all “protected” budget items –
which include salaries, pensions and social payments – will be financed fully
and on time. All payments on budget outlays, which were approved through the
end of November, should be completed as well.

MinFin attributed the underperformance of budget collections in 11M19 to
the appreciation of hryvnia, lower import growth and the decline in
tobacco-related revenue. Finance Minister Oksana Markarova emphasized in a
Facebook post that this action is not a budget sequester, but merely a decision
taken to deal the traditional wave of payments accumulated by the year end.

Evgeniya Akhtyrko: We are not
surprised by this government decision, as the chronic underperformance in
budget collections during the year was not a secret. To prevent the budget
deficit from swelling, the government has to cut its spending. An inflated
budget deficit is not an option of a country that is dependent on the financing of the IMF
and other financial institutions that consistently insist on prudent fiscal
policy.

Fiscal performance could become a challenge for
Honcharuk’s cabinet next year, when the government will no more have the excuse
that it has to deal with an “inadequate” budget inherited from predecessors. In
the new fiscal year, budget collections should keep up with plan. The new
“experiments” with cutting or suspending government spending will reduce the
government’s credibility.