Oleksandr Kunitsky
After a sleepless night, on Friday morning, the Verkhovna Rada adopted the 2019 State Budget, paving the way for the new IMF program; the management of two major European low-cost air carriers announced their active business development in our country, while President Petro Poroshenko ignored the requirements of protesting drivers, having signed laws on new rules for customs clearance of imported vehicles.
People’s deputies, after a sleepless night from Thursday to Friday, adopted a government-proposed law on the state budget for 2019. For many years, the country saw its main financial dpcument signed somewhere around New Year, and sometimes the budget process continued into January. Now the tradition has been broken as the law was approved in terms established by the Budget Code.
However, the tradition of budget debates throughout the night was too strong to break this time. 240 tired deputies cast their final vote at about six in the morning. “We managed to adopt the next year's budget on November 23, for the first time it's almost six weeks before the New Year. This is a balanced and realistic document, where all our priority areas of funding are preserved – army, security, education, health care, roads, and further decentralization,” Prime Minister Volodymyr Groysman proudly on Facebook, not without certain pride.
Budget revenue target is set at UAH 1.026 trillion and the expenditures – at UAH 1.112 trillion, while the deficit ceiling is UAH 89.9 billion, or 2.3% of GDP. According to Groysman, the budget approved will open up opportunities for Ukraine not only to do planning for the next financial period, but also to strengthen cooperation with international partners on financial assistance programs. The adoption of a balanced state budget with a low deficit was one of the main requirements of the country's key creditor, the International Monetary Fund. Oksana Markarova, appointed by the Verkhovna Rada on Thursday at her first press conference in the status of finance minister, said that Ukraine had fulfilled the preliminary requirements for starting a new 14-month IMF stand-by program worth $3.9 billion, which is subject to approval by the IMF Executive Board. Another important condition is that a few weeks ago, the government, after many months of hesitation and deliberation, increased gas tariffs for the population.
The new IMF program, Markarova noted, will allow the country to receive by the end of this year EUR 500 million of macro-financial assistance from the European Union and up to $650 million guaranteed by the World Bank. Thus, the country practically gets rid of a headache of finding funds to pay off and service the national debt in the next year of presidential and parliamentary elections.
Budget of moderate economic growth
The 2019 Budget is based on the outlook of economic growth at 3%, inflation drop from about 10% in 2018 to 7.4%, and the national currency rate by the end of 2019 at UAH 29.4/USD. The public debt target is set at UAH 2.060 trillion. The document focuses on raising social standards: the minimum wage from January 1 will increase to UAH 4,173, and the living wage – to UAH 1,853 from January 1, followed by growth from July to UAH 1,936 and from December – to UAH 2,027. Spending on health care increased by UAH 3.4 billion, to UAH 95.7 billion. Also, education funding is up by UAH 4.5 billion to UAH 126.9 billion. Defense and security spending rose by UAH 1.8 billion, to UAH 211.9 billion. In addition, the 2019 state budget envisages to allocate UAH 55 billion for road repair and construction, and UAH 167.5 billion – for pension payments. The government has pledged half a billion hryvnias to Ukrposhta – to reimburse expenses for the delivery of pensions and monetary assistance. Additional expenses of the state treasury are subventions to local budgets for the payment of subsidies to the population for utility bills worth over UAH 58 billion. According to Finance Minister Oksana Markarova, these funds will be spent on two programs, one of which provides for the transition to monetization of subsidies before the end of next year. At the same time, she assured that the approved budget will have enough funds for indexing pensions for Ukrainians and increasing pensions for the military.
The rising expenditures are proposed to be compensated by increasing the rates of excise tax on tobacco products, environmental tax for carbon dioxide emissions, rent rates for the use of subsoil for oil and condensate, iron ore extraction, and for special use of forest resources. The law also introduces value-added tax on postal parcels imported to Ukraine with a total value exceeding the equivalent of EUR 100 per recipient from one sender. In addition, the electronic system to control fuel turnover is being improved, which, as noted in the Ministry of Finance, will allow increasing the excise tax on fuel. According to the calculations of the Ministry of Finance, the changes will boost revenues to the consolidated budget in the amount of UAH 6.3 billion, of which the state budget will get an extra UAH 5.9 billion. Another UAH 1 billion is to go to the state budget's special fund from custom clearance of cars with European plates.
The government will transfer these funds to the Pension Fund, as a subsidy. The Verkhovna Rada on Thursday also supported a government reshuffle. In addition to the already mentioned appointment of Markarova, the parliamentarians appointed MP Iryna Friz head of the newly created ministry for veterans' affairs. Rada also accepted the resignation of the Minister of Agrarian Policy, Taras Kutovyi, who back in 2017 wrote a resignation letter.
Expansion of discount air carriers
The outgoing week turned out to be very eventful in the area of air passenger transportation. David O'Brien, Ryanair CCO, said at a meeting with President Petro Poroshenko that the carrier was considering the possibility of opening a software lab in Ukraine. He also announced plans to invest about $1.5 billion in our country over the next three to five years, increasing the fleet to 15 aircraft and passenger flow in the Ukrainian direction – to 5 million. At a joint press conference with Infrastructure Minister Volodymyr Omelyan, O'Brien announced the opening of five new destinations from Ukraine in April 2019 - Dublin, Sofia, Paphos in Crete, Manchester, and Athens.
Thus, from the summer season of 2019, Ryanair will do a total of 22 flights from Ukraine. In the outgoing week, another major European discount air carrier had some pleasing news for Ukrainians. At a meeting with Poroshenko, Wizz Air CEO Joseph Varadi announced plans to resume the work of the Ukrainian subsidiary, Wizz Air Ukraine, which was discontinued in 2015. According to him, the resumption of work of Wizz Air Ukraine will expand the network of low-cost routes of the airline to/from Ukraine thanks to investments of about $2.5 billion, which will be used to increase the Ukrainian fleet to 20 new Airbus A320 and Airbus A321 aircraft.
Undoubtedly, such a decision is positive from the point of view of the economy, because is a subsidiary is created, taxes will be paid to the Ukrainian budget. In addition, obtaining a Ukrainian license will give the carrier the right to do domestic flights. Therefore, it is possible that soon the Ukrainians will be able to fly with WizzAir at low-cost tariffs between major Ukrainian cities.
Another significant event in the industry in the outgoing week was the news about the plans of the authorities to build a new airport Prydniprivia on the administrative border of Dnipropetrovsk and Zaporizhia regions near the village of Solone. Infrastructure Minister Volodymyr Omelyan expressed confidence that the new airport could be built within three years.
Road repair: Results of 2018
In the outgoing week, Ukravtodor CEO Slawomir Novak, at a meeting of the Cabinet of Ministers, reported on the results of a 2018 campaign on a large-scale repair of broken roads across the country. According to him, 95% of the work planned for the current year was completed on state roads. At the same time, Novak drew attention to the failures in the work of regional authorities in repairing local roads. “We see that the total amount of work done on local roads is 63%,” he complained. The head of Ukravtodor recalled the increase in public funding of road works and urged regional authorities to show maximum results next year. “The total amount of financing of roads from the Road Fund is UAH 51.1 billion. Of this amount, UAH 34.4 billion is for state roads, and on local roads it's UAH 14.6 billion, while on security it's UAH 2.1 billion,” Novak stressed.
According to the Ukravtodor chief, this money is planned to be used to continue the implementation of the GO Highway project, which will connect Odesa and Poland's Gdansk, as well as repair the Odesa-Reni and Zaporizhia-Mariupol roads, construction of the second concrete road Mykolayiv-Kropyvnytsky, Merefa-Pavlohrad, Dnipro-Reshetylivka, and construction of the northern detour of Rivne. Speaking of quality control of the repaired roads, Infrastructure Minister Volodymyr Omelyan said that from next year, not only the quality of road repairs, but also the quality of building materials will be inspected.
Drivers' protests on pause
In the outgoing week, the protest of drivers who imported cars from the EU without proper customs clearance both started and stopped. The “Euroblachers," as protesters are called colloquially, held their rallies outside the Verkhovna Rada and partially blocked traffic on a number of roads across the country. Their main demand is to cancel the laws adopted by the Rada in early November, introducing a new procedure for customs clearance of imported vehicles. In particular, the innovations provide for a reduction in the excise tax for customs clearance of vehicles, at the same time imposing significant fines for violating customs regulations.
By the way, the drivers had actually supported the adoption of these laws. However, they demanded to take into account some changes that would further reduce the customs clearance of cars. The parliament did not take into account this amendment, which was the reason for the next wave of protests of “Euroblachers.” This inflamed tensions on the roads. Interior Minister Arseniy Avakov threatened to unblock the highway by force. According to him, the drivers blocking the roads have crossed the red line of the legal field, and their actions affect the rights of other citizens. The police have already opened five criminal proceedings on the fact of blocking transport communications.
However, the police did not have to use force as a protest leader Oleh Yaroshevych suspended the rallies. “We are forced to suspend our rally outside the Verkhovna Rada. It also makes no sense to rally on the roads across the regions. By the way, I'd like to say that none of the roads was blocked completely. There was only a restriction of movement,” said Yaroshevych. Some radical drivers of used cars with European plates called for continued pressure on the government; they demanded that the president veto the law.
However, on Friday morning, Petro Poroshenko signed the law, naming it “a difficult compromise between the state and actual owners of cars” and calling on “Euroblachers” to clear their cars at customs. Next week, the Ukrainians, having recovered from Black Friday, will begin preparing for the New Year's holidays. Meanwhile, global oil prices, to the delight of Ukrainian motorists, are likely to continue declining, while the International Monetary Fund will receive from Kyiv for a review the newly-adopted state budget to make a final decision on launching a new bailout program.
Oleksandr Kunitsky
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