Anti-crisis finance minister for country in quarantine
The Verkhovna Rada on Monday appointed a new head of the Ministry of Finance, a young economist with experience in government work Serhiy Marchenko. UNIAN learned the reasons why his predecessor Ihor Umansky, who had worked in office for only three weeks, was fired, as well as new tasks facing the new minister of a country in quarantine.
On Monday, a new minister of finance was appointed: the Verkhovna Rada at its extraordinary meeting voted for a 39-year-old Serhiy Marchenko. He replaced Ihor Umansky, who had been appointed to this post on March 4 when Parliament, at the initiative of President Volodymyr Zelensky, went for an ultimate cleansing of the Cabinet, including through replacing the prime minister.
Thus, the experienced financier Umansky, who in 2009-2010 led the Ministry of Finance as an acting chief, this time lasted in top office for only three weeks. Prime Minister Denys Shmyhal explained this unexpected move as follows: "In a difficult time, when the country is struggling with the rapidly spreading coronavirus, rapid action by the authorities is required."
Apparently, Umansky hadn't shown the necessary qualities in times of crisis.
Rumors about a possible reshuffle in the Ministry of Finance appeared on the eve of Rada's consideration of an updated government-submitted draft on budget amendments in response to the emergency in the context of the global pandemic and the global economic crisis.
It seems it was the drafting of amendments to the key financial paper that became the starting point in the Cabinet's move to rapidly change the ministry's leadership.
According to Ukrainian MPs, the initial version of the budget amendments prepared by Umansky provided for the redistribution of expenses, including reduction of financing of various government agencies and the allocation of significant funds to the stabilization fund set up to tackle coronavirus.
Many parliamentarians categorically objected the proposals. Instead of budget sequestration, deputies proposed to increase state treasury expenses. Such developments, apparently, left PM Shmyhal totally unimpressed, so the final draft of budget amendments was finalized practically without Umansky's participation.
By the way, at an extraordinary session on Monday, the Rada failed to pass the amendments at first reading, sending the draft back for revision to the relevant parliament committee.
Experts say one of the reasons for Umasnky's sacking was his moves aimed at changing heads of tax and customs services to bring in his allies. Obviously, this initiative saw no support from President and PM.
It's not clear yet, what other candidacies had been considered for the top post in the ministry besides Marchenko. According to chair of the Servant of the People faction, David arakhamia, Marchenko’s candidacy was negotiated jointly with the President’s Office and Prime Minister Denys Shmyhal.
It is worth noting that Umansky was dismissed without a hitch, whereas the new minister was appointed from second try. The second vote saw support of 256 MPs, including those with the pro-reform Holos (Voice) faction.
Young manager with vast experience
The newly-appointed head of the Ministry of Finance, Ph.D. in Economics, a 39-year-old senior official Serhiy Marchenko is rather well known in business and political circles. He graduated from the Academy of the State Tax Service with a degree in Public Finance Management. Since 2002, he has held various positions in the Ministry of Finance, the State Fiscal Service, the Committee on Finance and Banking, and the Secretariat of the Cabinet of Ministers of Ukraine.
Since 2011, he has worked as an outstaffer with the Center for Reform Implementation under the then-President Viktor Yanukovych, then headed by Oleksandr Danyliuk, who later became Minister of Finance. It is with Danyliuk that the most important turn in Marchenko's career is connected: they worked together at Kakha Bendukidze's Free Economy Center, where Danyliuk was a co-founder, and in May 2016 both came to the Ministry of Finance: Danyliuk – to the post of head of the Ministry and Marchenko – his deputy.
After leaving the Ministry of Finance in the summer of 2018 (at the same time when Danyliuk also left after a conflict with then-Prime Minister Volodymyr Groysman over HR policy), Marchenko was appointed to the post of Deputy Head of the Administration of the fifth president of Ukraine Petro Poroshenko. In May 2019, after new president, Volodymyr Zelensky, took office, he was fired. In 2019, Marchenko appeared on the lists of Groysman's Ukrainian Strategy party, which ultimately didn't make it to Parliament.
Crisis times and great challenges
On Tuesday, the new minister was introduced to the staff. In his inaugural address, Marchenko noted the need to increase the efficiency of tax and customs services, as well as the importance of fulfilling Ukraine's obligations to international partners and own citizens.
"Significantly strengthening the country's fiscal framework is especially important during a crisis. Effective work of the tax and customs blocs is more important than ever. The key criterion for evaluating this efficiency will be budget filling, because the state must fulfill its obligations to citizens. Especially to the least protected ones," Marchenko said, outlining his first steps in a new position.
In the meantime, the country's budget is facing serious problems, which have been exacerbated by the slowdown in business activity due to the all-Ukrainian quarantine introduced as part of the measures to combat coronavirus.
In the first quarter of this year alone, the state budget failed to receive over UAH 27 billion. At the same time, Marchenko noted that tax policy should be rational and pragmatic, aimed at protecting and developing the Ukrainian economy. And to this end, he said, one needs to think about new modes of stimulating businesses, which found themselves in a very difficult situation.
The national economy is entering a crisis period, which is confirmed by the data of the European Business Association, saying that almost half of Ukrainian companies have already recorded from 20% to 50% in revenue losses due to quarantine measures and falling global markets. So far, authorities at the legislative level have eased a number of tax regulations in order to support entrepreneurs, but it is obvious that, if quarantine is prolonged, there will be a need to further easing of tax pressure.
In addition to monitoring the budget, the new head of the Ministry of Finance has a responsible mission – to continue cooperation with the International Monetary Fund in order to avoid the country's default on its obligations. This is evidenced by the entire expert and business community of Ukraine, noting that this is the only chance for the country to avoid the worst-case scenario. And, despite the general drama of the current situation, there is a certain amount of optimism on this issue.
Indeed, Ukraine today is as close as possible to concluding a new financing program with the IMF, as it has almost completed the lender's homework – adopting the historic land market law and approving at first reading the draft law on banking regulation. Its second reading is scheduled for next week.
According to the head of the parliamentary committee on finance, tax and customs policy, Daniil Hetmantsev, Ukraine could receive the first tranche of the IMF loan in the amount of about $4 billion immediately after the adoption of the law on banking regulation as a whole. All that money will be sent to the stabilization fund of the state budget.
Also, Marchenko is facing another serious challenge. He has to finalize a package of anti-crisis changes to the state budget for 2020. In particular, these changes were based on proposals to cut revenues by UAH 123 billion, increase spending by almost UAH 80 billion and, as a result, increase the deficit by more than UAH 200 billion.
These changes to the budget were developed based on an updated macroeconomic forecast with GDP falling by 3.9%, inflation accelerating to 8.7%, and an average annual hryvnia exchange rate rising to UAH 29.5 to the dollar.
Deputies earlier this week criticized the draft and sent it for revision. Thus, very soon we will be able to see the first results the new minister's work. Whatever they are, it is obvious that the new leader will have to make ends meet in the face of a significant economic downturn and shrinking coffers that are rolling the country back by years.