“Samopomich” stands for the constitutional limitation of the growth of the state debt

In the proposed draft budget of Ukraine the Government, continuing the traditional habit of independent Ukraine to live on credit, plans to solicit 174.8 billion in 2017 (of which 70.9 billion hryvnias of external borrowings, and 103.9 billion hryvnias of internal ones).
For the redemption of public debt in 2017 it is planned to allocate 129.6 billion hryvnias, and 111, 3 billion hryvnias for public debt management. That is, the total payments on the public debt in 2017 will make 240.9 billion hryvnias (of which 168.7 billion hryvnias – payments on domestic debt, and 72.2 billion hryvnias – external debt payments).
To understand the scope of the amount that will be spent on the redemption and management of the public debt, let’s take a look at the following data: 129.3 billion hryvnias will be allocated for defence in 2017, 145.1 billion hryvnias for education, 58 billion hryvnias for health care.
According to the calculations provided in the draft budget of Ukraine for 2017, the total public debt calculated in national currency will amount to 1716.6 billion and will be equal to 66.4% of GDP. Publicly guaranteed debt, calculated in national currency will amount to UAH 579.4 billion (22.4% of GDP).
So we have a situation when the public debt and government-backed debt will reach 88.8% of GDP, which is contrary to the legal restrictions. Thus, according to Paragraph 2 of Article 18 of the Budget Code of Ukraine, the total amount of public debt and government-backed debt at the end of the budget period cannot exceed 60% of annual nominal GDP.
But can this legislative restriction stop the government’s desire to exceed this figure? The answer is simple – no, if we make changes to the Budget Code and strike down this regulation pleading holding of the anti-terrorist operation. Thus, the draft budget proposes to cancel the legislative restrictions on the maximum amount of debt in connection with the anti-terrorist operation held in Ukraine – chapter 13 of the Final provisions of the draft Law of Ukraine “On State Budget for 2017”.
The task of the government is to carry out systemic and structural reforms, to change the governance principles. A key incentive for the reforms (except for the political will to implement them) is a proper management of the public debt. After all, the possibility or restriction of such possibility of the government to borrow money determines the policy and approaches to formation of the state budget, to amending the budget and tax codes.
For two years “Samopomich” Union faction has been insisting on:
– Constitutional limitation of the possibility to increase the amount of debt in relation to GDP. In such a way we can ensure consistency and continuity of the structural reforms, because today the total amount of debt is approximating to 100% of GDP, while according to experts, it should not exceed the 35%. In our opinion, given the fact there is the war for our independence, given the financial needs for defence and implementation of structural reforms, this figure should not exceed 60%;
– Introduction of a temporary moratorium on the Ministry of Finance issuing Eurobonds, which are then used to cover the state budget deficit or are just eaten through and do not stimulate the fight against corruption in public procurement, the fight against theft in state enterprises, reform of the fiscal service and so forth. If these Eurobonds are issued, the earmings should be directed to a special fund to finance structural reforms, where every hryvnia or dollar should be clearly allocated for specific needs for reforming medicine, education, infrastructure projects, improving institutional capacity.
Many countries have undertaken this road, in particular Poland, which recognizes that such limitations stimulated the government to seek internal resources and carry out reforms.

Serhij Kiral
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