Cold showers expose Ukraine’s budget pinch
Basic services in country cut off as coffers run dry
KYIV — Ukrainians are used to a few days a year without hot water as sizzling summer temperatures give the country’s state-run utilities a chance to fix leaky pipes. This year, the stoppages have stretched into months.
“It’s like living in the Middle Ages,” said Olga Tymofeyshyna, a 25-year-old bank worker f rom KamyanetsPodilsky, about 80 kilometres from the border with Moldova. “Because of the government’s inability to pay its bills, we’re suffering from a lack of basic services. We’re very angry.”
In addition to hot-water shortages, street cleaners in the western town of Stryi threatened to block one of the former Soviet republic’s busiest highways this month, complaining they hadn’t been paid since April. In nearby Lviv, Ukraine’s seventhbiggest city, the treasury has blocked cash for school renovations, including money donated by parents.
Ukraine, which was awarded more financial aid than any eastern European country in the past five years, is struggling to recover from its second recession in four years and is “one step away” from a balance-of-payments crisis, Capital Economics Ltd. says. The fiscal gap has more than tripled from 2012, while cash in the treasury’s budget-spending account has plunged to a decade low. Months of talks have failed to bring a new bailout.
“It’s a tricky situation — revenue can’t meet spending because the budget assumes unreal growth,” said Alexander Valchychen, chief economist at ICU investment bank in the capital, Kyiv. “The cash balance at the government’s treasury account is chronically low.”
Ukraine’s fiscal gap widened to $2.8 billion U.S. in the first six months of the year from nearly one billion dollars in the same period of 2012, the finance ministry said this week.
The budget is based on projected economic growth of 3.4 per cent, while the European Bank for Reconstruction and Development forecasts a 0.5 per cent contraction as Europe’s debt crisis curbs demand for steel, Ukraine’s main export earner.
Ukraine’s economy shrank 1.1 per cent in the first quarter from the same period a year ago, while industrial production fell for the twelfth months in a row in June, sliding 5.7 per cent, according to the state statistics data.
The budget’s growth assumption will be revised once results are in for the first nine months of the year, Halyna Pakhachuk, head of the fi- nance ministry’s debt department, told reporters July 16 in Kyiv. Fulfilling the existing budget “isn’t easy,” she said.
Far from acknowledging spending delays, President Viktor Yanukovych, who faces re-election in 2015, said last month that it’s “desirable” for budget expenditure to be increased, calling for a mid-year review of the budget. Lawmakers began their summer break last week without fulfilling his wish.
Yanukovych instructed the government today to find resources to purchase ambulances and increase premiums to emergency doctors by Sept. 2. It should also ensure funding for a Yanukovych social program for children is maintained, according to a statement on the presidential website.
Reserves at the central bank fell to a six-year low of $23.1 billion in June as Ukraine repaid $1.1 billion of Eurobonds. The slump “serves as a reminder that Ukraine’s fragile external position continues to keep it one step away from a fullblown balance-of-payments crisis,” London-based Capital Economics stated.