Ukraine adopts austerity budget along IMF lines

December 22, 2016 (AFP) Ukraine's parliament on Wednesday approved an austerity federal budget for 2017 that doubles minimum wages but keeps the deficit in line with the target set by the International Monetary Fund (IMF). Lawmakers haggled over the bill into the early morning hours before passing it with some reservations about the social provisions it lacked.

The IMF is keen to see Ukraine keep its deficit to within three percent of gross domestic product (GDP) and reduce Soviet-era subsidies that remain a big financial drain. The demands are part of a $17.5-billion (16.8-billion-euro) rescue loan the IMF approved in 2015. Passing the budget was an important requirement for the IMF to release another $1.3 billion tranche of that loan early next year. Prime Minister Volodymyr Groysman told lawmakers that key sectors would still receive the government's full support.

"We will ensure spending on defence and back the agrarian sector," the Interfax-Ukraine news agency quoted Groysman as saying. Ukraine's military spending stands at a whopping five percent of GDP because of the 31-month pro-Russian eastern separatist insurgency the pro-Western country has been battling at the cost of nearly 10,000 lives.

One of the more controversial provisions will see minimum monthly wages double from 1,600 to 3,200 hryvnias ($121). Ukraine remains one of Europe's poorest countries and was also ranked as the continent's most corrupt by the European Court of Auditors this month. The minimum wage increase and higher benefits to the lower paid were a consequence of street protests in Kiev and populist lawmaker demands. But IMF economists worry that the measure may ramp up inflation that has been tempered since reaching more than 45 percent last year.

The Central Bank of Ukraine (NBU) has been able to reduce the interest rate it charges lenders to borrow money to 14 percent because of the slowdown in the cost of living increases. The spending plan envisions a deficit of 3.0 percent of GDP and puts total expenditures at $30 billion - a paltry sum that compares to that of Los Angeles County in the United States.

Some political analysts said lawmakers' tradition of passing federal budgets after pulling allnighters was detrimental for the country as a whole. "In that limited time, they have no way of learning what is actually inside the draft. And some of them simply sleep," political analyst Mykola Davydyuk told AFP. He also noted that Ukraine allotted almost nothing to large infrastructure projects aiming to reduce unemployment and fostering economic growth. The government's latest projections see Ukraine's economy expanding by about one percent.