Rada Okays Steep 2012 Spending Increases

KIEV, Ukraine -- Parliament late Thursday voted to approve amendments to the 2012 budget that steeply increase spending - and revenue collection targets - ahead of general elections in October.

Ukraine Parliament

The amendments reflect recent initiatives by President Viktor Yanukovych that boost social spending this year, seen by many as an attempt to increase support for his Regions Party ahead of the election.

But the developments may pose another problem in relations with the International Monetary Fund amid concerns that the greater spending ahead of the elections would widen the budget deficit.

“This is not a budget,” Arseniy Yatseniuk, the leader of the opposition Front of Changes party, said in Parliament.

“This is an election campaign paper for the Regions Party.”

The IMF suspended its $15.5 billion Stand-by loan to Ukraine 1.5 years ago, citing the government’s refusal to hike by 50% domestic prices of natural gas.

The gas price hike would have steeply increased spending at Ukrainian households, and further undermine Yanukovych’s Regions Party at the October elections, analysts said.

The government desperately tried to restart the loan this year, but the amendments will most likely keep the loan suspended through the end of the year.

The IMF has never approved further increases in budget spending, while analysts said that such spending would widen budget deficit and may potentially destabilize the country’s finances.

Anatoliy Miarkovskiy, deputy finance minister, has tried to ease those concerns.

“All increases in spending will come at the expense of increasing revenue collection,” he said.

The amendments, approved by 271 lawmakers in the 450-seat Parliament, call for increasing spending by 33.35 billion hryvnias ($4.1 billion) to 391.36 billion hryvnias ($48.1 billion), according to the government.

The budget revenue target was also increased by 33.35 billion hryvnias ($4.1 billion) to 366.17 billion hryvnias ($45 billion), the government said.

Most of the new spending – 18.2 billion hryvnias ($2.2 billion) - will come to pay for Yanukovych’s recent social initiatives that anticipate payouts to poor people, lawmakers said.

Another 6.15 billion hryvnias ($0.76 billion) will pay for Yanukovych’s plan to pay out some of the deposits frozen since the collapse of the Soviet Union after state banks had defaulted on payments.

The overall deposits are estimated at more than 100 billion hryvnias ($12.3 billion), and in 2009 then Prime Minister Yulia Tymoshenko had repeatedly promised to pay them off within years, triggering a spike in consumer inflation.

Tymoshenko, Yanukovych’s main political rival, was jailed to seven years in prison for pushing through a controversial 10-year natural gas agreement with Russia in January 2009.

She denied any wrongdoing and said the jail sentence was politically motivated.

Source: Ukrainian Journal