Ukraine's government has begun restricting budget spending because of financing problems and is not ruling out delays to public sector salary payments, Finance Minister Serhiy Marchenko told the finance committee of the Verkhovna Rada, Ukraine's parliament.
Marchenko said that if the situation does not change, meaning if lawmakers fail to pass legislation demanded by international partners, including a law taxing parcels worth up to 150 euros, salary delays could become a reality. He said the consequence of that could be a need to resort to emission financing of the budget.
The ministry had already exhausted all verbal means of communication, Marchenko said, so it was now forced to apply measures restricting expenditure.
He said the Finance Ministry had already pushed back all non-priority spending not related to the security and defence sector or the social sphere until the end of the year.
How spending will be prioritised
The government has also set out an order for financing expenditures under conditions of limited liquidity, Marchenko explained. When funds come in, the security and defence sector will be financed first, with other spending covered only if additional resources are available.
The restrictions apply not only to the state budget but to local budgets as well. Support programmes, capital construction projects and other spending may be suspended until there is enough liquidity to fund them, Marchenko said. Social expenditures are not affected by the restrictions, though he stressed that the actual timing of payments will depend on when funds arrive at the single treasury account.
Risk of salary delays
Marchenko said he did not rule out the possibility of delays. He added that the government aims to prevent delays in salary payments, since this would carry serious financial and social consequences.
He said he hoped it would not come to salary delays, because that would be a real financial catastrophe that would be hard to explain.
According to Marchenko, payment delays could trigger significant social pressure that the authorities would have to respond to. He named emission financing of the budget as one possible scenario in that case.
Marchenko said the government did not rule out the possibility of monetary financing of the budget, along with the resulting devaluation of the hryvnia, inflation and other negative consequences. He said the government could not simply sit and wait for money to arrive, and would respond accordingly to the intense social pressure that would follow.
He also warned that emission financing could put Ukraine's cooperation with international creditors at risk, saying the International Monetary Fund would not be able to support Ukraine's macro-financial stability if the budget were financed through emission.
Ukraine's budget deficit
Marchenko has said separately that Ukraine is preparing for a difficult winter amid a sharp intensification of Russian strikes and is facing a financing deficit of $32.6 billion. Without additional aid from its allies, Kyiv may have to postpone part of its non-military spending.
The New York Times has reported that Ukraine's European partners did not expect such a large budget deficit and are questioning whether the funds are being spent effectively or whether the needs are being exaggerated.
