In Ukraine, the budget process for 2024 started on time – the third year in a row that our state will be going through a full-scale war. UNIAN analyzed the main indicators that the government revised in the main financial document for the next year.
The Cabinet of Ministers followed the procedure and submitted the draft state budget for 2024 to the Verkhovna Rada on time, which, despite the increase in revenues and expenditures, is almost a complete copy of this year’s main financial document of the country.
Prime Minister Denys Shmyhal says so bluntly that 2024 will be “practically the twin budget year of this year”, because the main proportions and principles of the formation of the state treasury have not changed, although the economy is expected to grow by 5% next year. However, so far it remains a mystery, at the expense of which this growth will be achieved.
The revenue part of the State Budget 2024 project is 1.56 trillion hryvnias (increased by 345 billion compared to the current year), and the expenditure part is 3.1 trillion (+325 billion).
Next year and beyond, it is planned to cover humanitarian and social expenses with the help of international grants and long-term loans from partners, and everything that Ukraine earns in the form of taxes and fees will be spent on the defense of the state.
The Cabinet of Ministers plans to cover the huge budget deficit thanks to the same sources as this year – at the expense of funds raised from partners. At the same time, the government has not yet confirmed whether Ukraine will be able to count on the same amounts next year.
“This year, we plan to raise 42 billion dollars from our partners. Next year, the amount is similar, our plan is to raise the same 42 billion dollars. We are also negotiating with our partners so that the support is at the same level. This means that we have 18 billion we are asking the European Union, and we are also asking the United States for 1.1-1.2 billion per month,” Shmyhal said.
According to him, the four-year “Plan of Ukraine” program with a total volume of 50 billion euros is currently being prepared together with the European Commission, according to which 38 billion are planned to be used to cover the budget deficit, and the remaining funds are project financing and social projects.
In addition to aid from the USA and the EU, the government is counting on new tranches within the four-year cooperation program with the International Monetary Fund. So far, out of the planned 15.6 billion dollars, Ukraine has received only 3.6 billion.
Funding is also expected under two programs: a four-year program from Japan and a five-year program from Norway, the total volume of which is 5.5 and 7.5 billion dollars, respectively. There is also Canada, the World Bank, other countries and international organizations, which are unlikely to leave Ukraine alone with the problem of lack of funds.
“The year 2024 will be no less difficult than this one. We understand that it will be more difficult. I cannot say that we will pass the next year perfectly, we will pass it confidently and clearly in terms of financing, we, as the government, guarantee this to society “, the Prime Minister emphasized.
Next year, the government plans to significantly increase expenditures on the production of weapons and special equipment / photo ukroboronprom.com.ua
Financing the army
Next year, spending on security and defense is expected at the level of 1.548 trillion hryvnias, while this year 1.52 trillion was laid down. And although the increase in funding is insignificant, the government emphasizes that these amounts are not final.
“Today we are making changes and will increase this year’s budget for security and defense. We have submitted to the Verkhovna Rada amendments to the 2023 budget, there are about 300 billion plus. Next year’s budget is formed on the basis that the war will last twelve months. If there is a need to increase the budget of security and defense – we will increase it, this is an indisputable priority, we will look for sources”, – Prime Minister Shmyhal notes.
At the same time, next year the government plans to significantly increase expenditures on the production of weapons and special equipment. Thus, 56 billion is planned to be directed to the development of the Ukrainian military-industrial complex – to the production of projectiles, missiles and other military equipment.
“We are actually resuming the production of Ukrainian ammunition, Ukrainian equipment, armored vehicles, armored vehicles. We have a Ukrainian missile program, we can see some of the results of this program in the videos. Our production today is hundreds of times greater than it was before the full-scale aggression, than it was in the past “The real growth of production in the field of the defense-industrial complex occurs every month,” the head of government says.
Expenditures for the “Army of Drones” are also increasing: they will amount to 48 billion hryvnias, while in 2023 40 billion were allocated to this initiative.
“We have a normal development of this industry, it is growing not even every month, but every week. Therefore, we understand that we will continue this work,” the prime minister noted.
Today, communities accumulate tens of billions of hryvnias every month that are not used / photo ua.depositphotos.com
“Military” personal income tax and local budgets
The government plans to increase spending on the development of the domestic military industry by taking the tax on military salaries from local budgets. It is worth noting that the communities themselves contributed to such a decision, when during the war they bought drums for shelters or equipped stadiums near the front, spending inadequately large funds for this, which could instead be used for the purchase of drones, cars and other urgently needed military equipment.
The Cabinet of Ministers noted that it is impossible to develop “defense” or buy drones decentralized, and instead of thousands of resources it should be done through the state budget.
“Unfortunately, this cannot be done at the community level. Communities currently accumulate tens of billions of hryvnias every month that are not used. It is a crime to allow money to be frozen in community accounts during a war. We must direct all the money to strengthening our defense capacity, for our victory,” the prime minister notes.
At the same time, communities in 2024, according to Shmyhal, “will not be offended”, because they will be left with balances in the amount of 216 billion hryvnias, which are currently in their accounts. In addition, according to the calculations of the Cabinet of Ministers, in 2024 the total revenues of local budgets will increase by another 75 billion hryvnias.
“Of course, there will be certain restrictions on the use of this money. We do not want to allow it to be used for things that do not relate to the current needs of our state. We, of course, keep all subsidies. The government guarantees that the budgets of communities will not be smaller than were in 2021, or will not be deficient in terms of needs, especially in those regions where hostilities are taking place or frontline regions,” added Shmyhal.
The draft state budget foresees a number of expenditures that have not been made so far. For example, funds for humanitarian demining have been provided for the first time – in 2024, 2 billion hryvnias will be allocated for this purpose.
The government officials borrowed this idea from the farmers, who for the first time purchased a service for humanitarian demining of their lands through “Prozorro”. Taking into account this experience, the state plans to start a new market and compensate the costs of those who want to clear the Ukrainian land of Russian mines and shells.
“Since the service was bought at an auction, we understand that the price is the lowest. We are ready to compensate the farmers in full or in part… In fact, this is a function of the state, which it is ready to share with the farmers,” the prime minister said.
Thanks to this, the Cabinet of Ministers plans to complete demining of agricultural lands within 3 years after the liberation of Ukrainian territories, and in general, they plan to close this issue throughout the territory of Ukraine in 5-7 years.
For the first time, 1 billion is laid in the state budget to reimburse the cost of connecting to the power grid for investors, as well as 1.5 billion to the Innovation Development Fund, which will finance startups.
Among the government’s plans for 2024 is the introduction of a program of partial compensation for the cost of domestically produced equipment. The state already has such experience, when farmers were reimbursed 25% of the price of purchased agricultural machinery produced in our state. This time, they want to extend the program to cargo and utility vehicles and special vehicles. So far, the government has allocated 1 billion hryvnias for this.
An important reform next year should be the introduction of a graded system of payment of civil servants. They will have a basic salary at the district level, and then there will be “steps” with allowances for each level. The main goal is to move away from the practice when officials can have bonuses of 700-800% of their salary.
“The salary will be 70 percent, and the bonus will be no more than 30 percent of the salary for the year in general,” the prime minister outlined the goal.
Pension in 2024 will exceed 6,000 hryvnias / photo UNIAN, Vyacheslav Ratinsky
Indexation of pensions
Another feature of 2024 should be the next indexation of pensions from March 1, as it happened in previous years. However, this time the government plans to make it “fairer” so that the solidarity pension for Ukrainians is 30% of the average earnings.
For this, a points system will be introduced, which will not allow a large difference in payments for two pensioners who have completed the same career path, but in different time periods.
“Teachers, doctors, first of all, who had stable average salaries – their salaries will be equalized, and for people who retired earlier, their pensions will be significantly increased to the current level. We call this fair indexation. The pension will be indexed regardless of time retirement,” the prime minister emphasized.
According to him, thanks to this, the average pension in 2024 will exceed 6 thousand hryvnias.
In addition, from April 1 next year, the minimum wage in Ukraine should increase to 8 thousand hryvnias.
It is clear that the budget process in Ukraine has only just begun, and we may still have battles in the parliament, as a result of which the initial draft of the main financial document of the country may undergo significant changes. However, the basic things in the form of the priority of financing the army and the significant deficit, which must be covered by foreign loans and grants, will certainly remain.
With this in mind, I would like a clearer understanding of what the government expects to achieve five percent economic growth in 2024, and whether it has any ideas on how to exceed this figure.