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Interview 14:55 02 Sep 2022

Key issues of Ukraine's 2023 budget: what to expect, how funds will be used, what reductions to await

By September 15, the Ukrainian government must approve the 2023 Budget and submit it to the Ukrainian parliament. How does this process take place, and what is currently the parliamentary budget committee's focus? Rubryka asked its chair Yurii Aristov.

Autumn is the traditional time when the Ukrainian parliament, Verkhovna Rada, begins active work on forming the budget for the following year. The Cabinet of Ministers approved the 2022 budget almost a year ago—on September 15, 2021. But in February, Ukraine's plans and most pressing issues changed irreversibly. In wartime, the budget works differently: in peacetime, we needed to make changes to the law to change the number of expenses or income. That required time: days or even months. Now, Verkhovna Rada's decision is not required. The government can dispose of funds at its discretion, redistributing them to the most necessary needs. All the more, it applies to expenditures on the state's defense (by the way, on February 23, the Verkhovna Rada deputies [MPs] allowed the government to make such changes in favor of Ukraine's defense in peacetime as well).

How has the 2022 budget changed? Due to the start of russia's full-scale war, the state completely abandoned spending on capital construction and development, which accounts for about UAH 140 billion.

In the first months of the full-scale war, the way we received funds in the budget changed significantly. Usually, the budget was mainly filled with income from the import tax payments. With russia's invasion in February, it became problematic. In the first month of the full-scale invasion, Ukraine filled the budget with early transfers of the profits of state-owned enterprises in 2021.

Interestingly, in September 2021, the Ministry of Finance calculated that defense spending in 2022 would amount to 5.95% of GDP. In total, the government planned to spend UAH 319.4 billion on this sector, of which UAH 130.99 billion would go to the Ministry of Defense. Ukraine's defense sector now requires more funds; fortunately, our foreign partners help us here.

What will the 2023 budget be like? 

український бюджет

This year, the budget-forming process is taking place in unprecedented circumstances—a full-scale war started by russia is ongoing in Ukraine. Forming the budget now represents new challenges, the need to be even more flexible, and the need to calculate everything so that Ukraine can not only hold on but also bring Victory closer. Rubryka had an exclusive interview with Yurii Aristov, chair of the Verkhovna Rada Committee on Budget Issues, and found out how the budget committee works in war, how to adapt the budget to urgent needs in real-time conditions, and how to forecast the budget in turbulent times.

– How does the budget committee work under martial law?

– The committee works mainly remotely. Meetings are held weekly, sometimes even twice a week. We consider changes to the state budget related to the war and its consequences. The work is synchronous with the Ministry of Finance, and we have a complete mutual understanding of the country's situation.

– What is happening now with Ukraine's budget? What are our key trends?

– Forecasting the budget during the war is a challenging and thankless job. Therefore, the country and the Budget Committee live from month to month, each time assessing needs and tasks. Again, it mainly concerns the consequences of the war—for example, spending on internally displaced persons (IDPs), pensioners, and restoring infrastructure damaged by hostilities.

Of course, the most critical task is the financing of defense needs. So, based on the requests that appear, there are also changes in the budget. The priority is the defense capability of our country, social spending, medicine, and infrastructure restoration, as far as is currently possible.

– What is the current budget deficit, and what is the percentage of sequestration (reduction of expenses for implementing individual articles or the entire state budget)? What is the direct monthly assistance of our foreign partners? How much help is needed from partners to cover the deficit?

– The marginal volume of the budget deficit currently amounts to UAH 1,108.4 billion. It is almost six times more than the initially approved indicator. UAH 181.3 billion has been directed to the state budget's Reserve Fund due to the reduction of state budget expenditures under many budget programs.

As for international financial aid, according to the Ministry of Finance, from February 24 to August 30, it amounted to UAH 543.8 billion. We are talking about loans and grants from international financial organizations, foreign financial institutions, and foreign states involved in the state budget. Of course, we provide information to our international partners about the budget deficit. Regarding further assistance, negotiations are ongoing but take time, depending on the project.

In any case, we are grateful to those countries and organizations that help, thankful that they don't leave Ukraine alone in trouble.

– What procedure and principles will be considered in forming the 2023 budget? Will it take place under the budget code or in a simplified form due to martial law?

– It has already been decided that this year's budget process will be organized under the Budget Code. By September 15, the draft budget for 2023 will be sent to the Verkhovna Rada from the Ministry of Finance.

In the summer, all ministries received the task of reducing their expenses, particularly the staffing schedule, to reduce the burden on the state budget for 2023. The budget will be formed by analogy with this year and considering the war. Of course, it all depends on how long it will last. But it is essential to make a framework document, where we will make adjustments depending on needs and tasks this year.

Regarding the budget process, I would like to emphasize that there will be no simplified procedure. The Ministry of Finance will submit the project by September 15. Within five days, we must assemble the Committee, draw conclusions and recommend it for approval. Then a couple of weeks are given for corrections from the parliamentary factions and groups, which we also consider, decide, and submit the bill to the session hall for a vote in the first reading. The Cabinet of Ministers then revises the budget for the second reading, and we review it again before the document reaches the session hall.

– How do you comment on the recent Bihus.Info investigation regarding two of your committee member enriching their families during the war? After all, there was information earlier that people's deputies Oleksandr Trukhin and Arsenii Pushkarenko tried to dislodge you from the committee chair post by destabilizing and disrupting the work of the Committee.

– After Bihus.Info made several fascinating videos about me, I didn't pay attention to this program. So, I didn't watch the story, so I can't comment.

As for someone seemingly trying to remove me from the position of the Committee's chair, I don't have this information. There have been speculations about the state budget and its expenses for years. But interpreting them as if they are related to me is wrong. It is not the case.

I want to remind you that all budget decisions in the Committee are collegial. At least 18 people's deputies approve them. Disputes are possible; they sometimes happen at meetings, and deputies express their opinion. But neither I personally nor anyone else can influence the work of the Committee or the Verkhovna Rada as a whole because it is a collegial body.

Budget of the military economy: what does the government say?

кабмін

The work on the budget is now active, and the 2023 Budget will indeed be historic. Ukraine's Minister of Finance Serhii Marchenko has already called it "extremely tough": "This is a budget of opportunities in the conditions of war… There is hope that we will be able to finance it. The critical task is to find funds, including with the help of our partner countries, and to finance the budget deficit."

Marchenko also hinted at the hryvnia exchange rate, which will be set in the State Budget: "I don't want to create expectations. But the numbers there are not catastrophic. There's hope we will preserve all the balances after all," he said.

Ukraine's Prime Minister Denys Shmyhal ensured that the budget for next year would provide for preserving all payments under social programs. He says spending on the army and state security will be a priority.

"We clearly define that it will be a budget of the military economy, where the priority remains the army and security. At the same time, the Cabinet of Ministers foresees the maintenance of payments under all social programs. Macroeconomic stability of the state is the third overriding priority," he said.

The prime minister also announced the creation of the Operational Recovery Fund within the budget, where international donors will be able to send funds.

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