Week's balance: Rada passes 2021 budget at first reading, Cabinet presents country's audit, while GDP decline slows down
The parliament approved at first reading the draft law on the 2021 state budget, the government spoke about a large-scale plan to allow the country to realize its significant potential in 10 years, while the Ministry of Economy announced a slowdown in the economic decline – these are the key economic developments of the first week of November.
The main economic event of the outgoing week, of course, was the parliament passing the draft state budget for 2021 at first reading.
The Verkhovna Rada was supposed to consider the draft budget at the end of October, but for a number of reasons, the process was delayed. When preparing the bill, the profile committee received some 2,500 amendments to the original text.
According to preliminary calculations, in order to implement all the proposals, it would be necessary to find another UAH 1.5 trillion, that is, the size of another budget. As a result, the Budget Committee invited colleagues to take into account 1,276 amendments in whole or in part, and reject the rest.
At the same time, deputies instructed the Cabinet of Ministers, while preparing the bill for second reading, to carefully study the issues of raising social standards, increasing revenues from privatization with a corresponding decrease in borrowings and the volume of the national debt, as well as reducing certain expenses.
Reporting from the parliament rostrum, Finance Minister Serhiy Marchenko noted that after taking into account the amendments accepted for consideration, the expenditure part of the 2021 state budget increased by more than UAH 20 billion.
At the same time, he said that the budget will lay down sufficient funds to finance all priority needs, overcome the coronavirus crisis, maintain financial stability, and improve citizens' welfare.
"The project is fully balanced and feasible. This is not just a financial estimate, but a tool for the country's development and growth," the minister stressed.
Head of Government Denys Shmyhal said that the passing of the bill at first reading gives Ukraine the opportunity to complete the dialogue with the main international lenders regarding new loans.
"The adoption of the budget at first reading opens up an opportunity for Ukraine to complete dialogue with our financial international partners. And literally next week, I hope, another very important round of negotiations with the IMF, the World Bank, and the European Union will take place," he told journalists.
Meanwhile, the government's restrained optimism about 2021 is not shared by the Accounts Chamber, as its head Valeriy Patskan said, speaking in Parliament.
"The government projects economic growth by 4.6%. This is quite optimistic, but given the current situation, there are risks that such growth will not be achieved. Quarantine restrictions will prevail until the end of the year. The recession in industry and other sectors continues, lending to the economy and the inflow of foreign capital have decreased. This will lead to a shortage of revenues laid down in the budget," he said.
Economic crisis and timid hopes for improvement
Last week, the Ministry for Development of Economy, Trade and Agriculture published an overview of economic performance for the nine months of 2020.
According to the department, the rate of decline in the domestic gross domestic product slowed down to 5.5% , while in January-August, it amounted to 5.8%.
"Over the nine months of 2020, the reduction in the composite index of production of goods and services slowed down and amounted to 6.2% (6.5% over the eight months), respectively, the decrease in GDP volumes the Ministry of Economy approximately estimates at 5.5% (3.6% in the third quarter of 2020 against the third quarter of 2019, which is higher than previously expected)," the review said.
The Ministry of Economy noted that in September certain types of industrial activity, the construction industry, the trade sector, the retail segment of the market improved their dynamics, gradually retreating after the spring downtime.
At the same time, the decline in demand for natural gas in the European Union and for freight rail transportation, as well as the effect of domestic restrictions and the strengthening of quarantine worldwide continue to put pressure on the transport industry, which suffered quite hard a blow back in April.
In addition, the rate of decline in agricultural performance accelerated. The reason for this was the low yield of late crops (in particular, corn, sunflower, soybeans and sugar beet) due to unfavorable weather conditions during the growing season and low rates of the harvesting campaign.
The Ministry of Economy in its review retained the forecast for a GDP decrease at 4.8% at the end of the year, provided that the corona crisis in Ukraine and beyond doesn't escalate dramatically. Otherwise, this could lead to much tougher quarantine restrictions.
If we take into account that almost 10,000 new COVID-19 cases are now being reported daily in Ukraine, a repetition of strict quarantine is looming on the horizon, as it was this spring. By the way, Prime Minister Shmyhal projects 15,000 new daily cases in November and 20,000 in December.
And although officials in every possible way disown the idea of repeating the national lockdown, many understand that this remains an actual prospect. And then it is unlikely that we will see the economy fall by some 5% this year before returning to growth in 2021.
Trillion dollars in 10 years
The Cabinet of Ministers tried to smooth out gloomy expectations about the near future by presenting the results of the country's "audit" and their vision of the vectors of economic development until 2030.
As Prime Minister Shmyhal noted, Ukraine has such a huge economic potential that, if realized, it could increase the gross domestic product by $1 trillion in 10 years.
"Today we have a clear answer: 1 trillion dollars of GDP in ten years is our country's unrealized potential. One trillion was lost by all citizens of Ukraine, lost due to the constant change of vectors, unfinished reforms, lack of a long-term economic strategy, corruption, and ineffective governance," the head of government said at the presentation of the country's audit results.
Of this trillion, the lion's share should come from the large-scale development of domestic deposits of natural resources and the disclosure of potential in international trade and transit of goods – at $409 billion and $407 billion, respectively.
At the same time, Shmyhal noted that a higher output of raw materials should lead to the creation of high-tech added value products instead of simple raw exports.
As for new horizons for the development of domestic exports, the prime minister named the East, African and Latin American countries as major destinations, as well as the active work of the new Ministry of Strategic Industries.
The Cabinet plans to increase the country's GDP by almost $100 billion by realizing the "land" potential.
"In ten years, the Ukrainian gross domestic product will receive up to $85 billion from land market development. Its average cost per hectare will actually grow fivefold," Shmyhal emphasized.
Also, the government plans to develop water and forest resources, as well as unlock the investment and technological potential of the national economy. All this should bring more than $100 billion to the state coffers.
Shmyhal vowed to present in the first quarter of 2021 the National Economic Strategy until 2030, which will be aimed at maximizing the country's potential.
President Volodymyr Zelensky, who attended the event, noted that the strategy should not become a declaration, but rather a kind of "economic Constitution of Ukraine."
Judging by the statements made, the head of state believes in the exorbitant figures announced.
"Ukraine isn't sick. All this time, Ukraine has simply been too shy, embarrassed to dream, dream boldly, dream ambitiously, indecisive to become the most successful country in addition to being Europe's largest country. Audit is an analysis of our complexes that frightened and fettered our movement forward. All of them must become a thing of the past," the head of state added.
Well, let's hope that this strategy will be more viable than the promises of the previous Prime Minister, Oleksiy Honcharuk, who last year assured that the country would see 40% GDP growth in five years.
Next week, the government will begin preparing the draft 2021 state budget for the second reading, while MPs will continue to work in committees. The State Statistics Service will release data on the inflation index for October and Ukraine's foreign economic performance for the first nine months of 2020.
With temperature falling, a full-blown heating season will begin in all settlements across country. Winter is knocking on our doors, and we must be prepared.