Oleksandr Hrechko (UNIAN)
The Ukrainian Government has announced it is drafting
a package of incentives for the revival of the national economy and hinted at
the rigidity of the draft state budget for 2017; consumer prices fell again;
while Europe showed interest in the Ukrainian gas transportation system – these
are the main economic news of the past week.
The second week of August, traditionally, was not
raining with important economic news; however, it was marked by a number of
interesting events and facts that indicate the state of the national economy
and provide an understanding of growing trends.
On Monday, after a week's break, Prime Minister
Volodymyr Groysman chaired a meeting of the Cabinet, announcing plans to
prepare a package of legislative initiatives to stimulate economic growth by
the start of the September session of the Verkhovna Rada. "We have to
develop a package of legislative initiatives that we need in the framework of
the work if the Ukrainian Parliament, in order to support economic
growth," said the head of government.
The first signs of economic growth must be supported
by stimulating economic policies, the Premier emphasized. In this context, the
government intends to develop a "non-populist mechanism" for the
increase in wages and pensions, which would correspond to the actual
opportunities of the economy.
As the prime minister said, the Ukrainians’ labor is
undervalued, therefore state support should be aimed at stimulating the growth
of salaries. During this month, the Cabinet also intends to hire the staff for
the Office for attracting investments, so that it could start its work from
September 1. This structure will accompany the activities of foreign investors,
for whom Ukraine has high hopes.
An international song contest Eurovision 2017
scheduled for May 2017 will also contribute to improving the image of the
country. Thanks to the victory of the Ukrainian singer Jamala, Ukraine is
hosting the next show. Last week, the government has allocated to the State
Committee for Television and Radio Broadcasting UAH 450 million for
preparations for the contest, while Kyiv, Dnipro and Odesa are competing for
the right to be a host city.
The winner will be announced August 24 – on Ukraine’s
Independence Day.
A tough budget for a “military” year
Last week, some details of the state budget for 2017
started to clarify, as the government is actively working on its draft.
According to the Constitution, the document must be submitted to Parliament
before September 15.
"Before September 15, we plan to submit a [draft]
budget. I have to say: the process is not easy," said Minister of Finance
Oleksandr Danylyuk. The Ministry of Finance intends to change the principle of
formation of the state budget for next year, making it based on the forecast of
revenue and real opportunities rather than on the plans for expenditures.
"We are all used to a certain freedom in the
formation of the budget, but this year, it will not work this way. It’s time
for a reality check," said Danylyuk. This statement means that the Cabinet
is set for tough economy of public spending. This principle will also extend to
the education sector.
According to the Ministry of Education and Science,
the Ministry of Finance sent to the main managers of budgetary funds a Letter
of Instruction on the preparation of applications to the draft state budget for
2017, where it tells to reduce costs for stipends. The same applies to the
draft budgets for 2018-2019 years.
However, the Ministry of Education refused to support
this initiative. After a wave of criticism from the media and education
workers, Danylyuk said that the Ministry of Finance does abolish stipends as
such (it has no such authority) but only expects to provide a new mechanism for
their payment in the budget 2017.
It is planned that the financing of expenditures of
the security services and defense in the fourth year of the undeclared war
Putin’s Russia is waging against Ukraine will remain at the level of the previous
year – nearly 5% of GDP. Nearly 3% of GDP is to be allocated for the defense
industry. All of these expenditures, caused by the need to refute Russian
aggression, are estimated at UAH 129 billion.
Timid growth
Filling the budget will only be possible when the
economy works. The citizens, the businesses and the government – they all
expect that next year will mark the beginning of steady growth.
According to First Deputy Prime Minister - Minister of
Economic Development and Trade Stepan Kubiv, in 2017, the national economy
could grow by 3% compared with the 1% growth this year.
Last year, due to the Russian aggression, the damage
it inflicted in the industrial Donbas, and trade wars, the country's economy
has fallen by 9.9%. Therefore the growth by 3% is good progress, indeed.
The vice prime minister sees gradual growth of
investment and consumer demand as the drivers of growth at this stage.
"This positive effect is given by macroeconomic stabilization, gradual improvement
in the business climate, improvement the effectiveness of the management of the
economy’s public sector, and harmonization of the national legislation to that
of the EU," Kubiv has told UNIAN.
Fitch Ratings agrees with the government's estimates of
growth of the Ukrainian economy in 2016 by 1%.
Fitch forecasts a slight weakening of the hryvnia
exchange rate to the U.S. dollar at the end of this year to UAH 26 per dollar.
The agency believes that in 2017, the national currency exchange rate may fall
to UAH 28 per dollar.
Meanwhile, the State Statistics Service records a
stable situation with prices on the consumer market, which also distinguishes
this year from the previous two years of galloping inflation.
According to the stats released, there was at 0.1%
decline in consumer prices in July compared to the previous month. In June,
Ukraine saw a 0.2% deflation. The greatest decline in prices in July compared
to June was recorded for vegetables - 20.1%, footwear - 4%, and clothing -
3.3%. Weak inflation processes allow us to expect that by the end of 2016, the
prices on the consumer market will not rise beyond forecasts of the government
and the National Bank at 12%.
European interest
The past week also reminded of the strategic
importance for Ukraine and Europe of the national gas transportation system,
which is a reliable supplier of fuel for the European economies.
According to the commercial director of Naftogaz of
Ukraine Yuriy Vitrenko, European companies are interested in participating in
the management of our gas transportation system. "There is a formal offer
from the companies through the European Commission. We started to work this
question out with the European Commission," said Vitrenko.
A more detailed information has not yet been made
public, but it is clear that Ukraine's future partner may not only help the
country deal effectively with gas transits, but also to transform Ukraine into
a major gas hub.
This will allow European companies to purchase gas on
Ukraine's border with Russia, which will increase the interest in the Ukrainian
gas assets. Meanwhile, Ukraine last week significantly increased the transit of
Russian gas to the EU countries.
On Monday, Gazprom appealed to the state-owned
Ukrtransgaz, the national GTS operator, with the request to provide increased
volumes of gas transit via Ukraine due to the transit halt at Nord Stream
caused by scheduled maintenance of the pipeline.
As is known, Nord Stream was designed to a greater
extent to deprive Ukraine of significant volumes of gas transit. Ukrtransgaz
agreed to do as asked by Gazprom. However, the things traditionally went along
with the northern neighbor’s provocations. In particular, Gazprom has not
provided in due time the necessary pressure at the border gas metering
stations.
Most likely, the idea was that Ukraine would suspend
injecting gas into its storages to ensure proper pressure. However, Ukraine has
fulfilled the request of the Russian gas monopoly only after Gazprom complied
with the requirements in respect to the gas pressure in the pipe.
As noted by Naftogaz of Ukraine, Ukrtransgaz has
provided transit growth by 20% - up to 276 million cubic meters in a single
day, despite the fact that, according to the current contract, Naftogaz could
request a longer period.
According to the President of Strategy XXI Center
Mykhailo Honchar, the appeal of Gazprom suggests that the Ukrainian GTS
continues to play an important role in gas supplies to Europe. "This once
again emphasizes that the Ukrainian GTS plays an extremely important role.
Therefore, neither Nord Stream, nor South Stream, nor
the other pipelines will not provide anything like this, because, in case of an
accident or emergency situation at sea pipelines, the supply will simply be
interrupted," Honchar said in his comments to UNIAN. "As for the
Ukrainian gas pipeline, such a situation cannot arise," said the expert.
A good crop
The Ukrainian agrarians are completing harvesting of
early grain crops, showing good results. By August 12, they have harvested an
area of 9.5 million hectares (99% of the forecast), having threshed 37.6
million tonnes of early grain and leguminous crops. In particular, they
harvested 26.2 million tonnes of wheat, 9.8 million tonnes of barley, 370,000
tonnes of rye, and 468,000 tonnes of oats.
According to the Ministry of Agrarian Policy and Food
of Ukraine, the current year has been very fruitful for Ukraine. An indicator
for grains is 39.4 c/ha. The biggest yield is recorded in Odesa region with 3.8
million tonnes.
Next week promises to be richer on economic news.
Naftogaz plans to complete the selection of companies that will supply gas to
Ukraine for the loan funds of EBRD, which will help accumulate in storages
enough gas for the heating season.
The State Statistics Service will publish information
on foreign trade, housing construction, and will summarize the work of
transport. Most likely, the Cabinet will also hold its meeting next week.
Meanwhile, it is clear that information calm in the country’s economic life
will also remain before Independence Day, after which the Ukrainians will
return to their offices from vacations.
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