Next year half of the Kyiv budget will be spent on debt repayment

Photo: Ukrainian photo

The Kyiv City Council began working on the capital’s budget for next year. The budget committee has assessed the budget as problematic and hinted that a tough economizing regime should be introduced. In particular, Kyiv residents should not expect the opening of a subway station in the Troyeshchyna district, or the construction of an aeration station in Bortnychi.

It is planned that the education sector will be financed by the state treasury. At the same time, loans in the amount of UAH 8.6 bn should be repaid by the city budget. This is equal to the volume of proceeds from income taxes, according to this year’s calculations. Some financial experts in the mayor’s office believe that from an economic vantage point default could have been an ideal option for Kyiv in this situation.

No subway for Troyeshchyna residents

A specialized committee of the Kyiv City Council is already working on the city budget for 2015. At this point, it is clear that there is no hope for improvements in the nation’s capital, Head of the Kyiv City Council Budget Committee Andriy Strannikov told Capital.

“As was the case in 2014, the budget will be complicated. We are considering three options of forming it. The first option is that 50% from the proceeds of income tax are transferred to the state budget (more than UAH 8 bn – Capital). The second envisaged the ratio of 25% to 75% and third – 40% to 60%. The last two variants will not benefit Kyiv, but in this case education and medicine should be financed by the state,” he explained.

Any of these three variants will definitely not fill the city’s coffers in 2015 more than this year, which means Kyiv officials will not be able to finance any costly projects.

“Expecting the construction of the Podil-Voskresenskiy Bridge, the subway line to Troyeshchyna, the beltway around Kyiv or the reconstruction of the Bortnychi aeration station is none other than an exercise in futility. All efforts will be directed only towards objects that are almost ready for commissioning or emergency objects, for instance preventing landslides,” says Strannikov.

Debts are going off-scale

According to official information of the Kyiv City State Administration (KCSA), the amount of the city’s debts over the past four years increased from UAH 6.7 bn to nearly UAH 12 bn and the city is forced to service and repay the lion’s share of this debt in foreign currency, regardless of the fluctuations of the exchange rate of the hryvnia to the dollar.

“Next fiscal year will be critical for Kyiv as the city will have to pay off UAH 1.9 bn on bonds that were issued to cover the difference in tariffs and another UAH 3.5 bn in domestic loans (UAH 2.6 bn and those that according to the city’s plan will be paid off in 2015). In addition to that, it is difficult to forecast the value of US $250 mn in Eurobonds issued in 2005 by November of next year, as at today’s exchange rate it is UAH 3.2 bn. In total, the sum is UAH 8.6 bn of the general fund of the budget,” former deputy head of the KCSA Ruslan Kramarenko said. As such, more than half of the general fund of the Kyiv city budget, which will again not be enough even to cover the protected articles, will be spent to pay off debts.

According to the latest data of the Kyiv mayor’s office, this year’s city budget has only been executed by 58.4%. Only one fourth of the planned amount of land taxes are paid to the budget, 21.3% from the sale of land and payment of contributions for infrastructure development (36.8%). “Given such indicators, we are better off declaring a default and cut off mobile phones,” say financial experts of the KSCA, jokingly or seriously.

Count on lease and sale of land

In the opinions of experts, the only solution for the city in the given situation is not to increase the level of debts. At the same time, amendments to the legislation must be made and proceeds from income taxes must be returned to the city budget. “I, unfortunately, do not see a prospect of growth in the amount of proceeds. The lion’s share is the income tax, while wages are not growing and the number of jobs is in decline. The only resource that the city authorities could us to give a boost to the city is proceeds from the lease and sale of land,” says Kramarenko.