Week's balance: delay with pensions, gas tariff freeze, and privatization restart
The pension fund for the first time in many years failed to ensure the timely payment of pensions, the government once again refused to raise gas prices for the households, while a long-awaited start was given to privatization of smaller-scale state companies - these are the main economic news of the outgoing week.
This week, Ukrainians unexpectedly encountered delays in the payment of pensions for July. On average, this month the delays were from three to four days only but they immediately provoked unrest in most socially sensitive part of society, creating negative associations with the 1990s, when social payment delays were traditional and extensive. The July situation also sparked rumors of significant problems with state finances. The anxiety was somewhat fueled as a result of late reaction on the part of authorities: only after a few days after the issue emerged did the authorities manage to come up with a clear public explanation.
Only late Wednesday did the Pension Fund publish on its website an appeal to Ukrainians, stating that the delay was due to cash gaps in the receipts from single social contribution. At the same time, the Fund assured that the payment of pensions in July will be covered in full.
On Wednesday, Prime Minister Volodymyr Groysman also delivered a response. At the meeting attended by top officials of the Pension Fund, State Treasury, Ministry of Finance and Ministry of Social Policy, the head of government ordered an official investigation into the activities of the PF head, as well as its heads of its regional offices.
According to Groysman, top managers of the Pension Fund are personally responsible for the delays that arose with the payment of pensions.
He drew attention to the fact that the state, for its part, provides all budget transfers to the Pension Fund on time.
"The central budget has no debt before the PFU. We're fully funding it. We're taking all measures to prevent the situation from repeating. Pensioners should receive respect and protection," Groysman said.
The finance ministry confirmed the PM's words, assuring that all the expenses of the state budget for the payment of pensions for July had been financed on time. At the same time, the Ministry of Finance recalled that the Pension Fund, in accordance with the Budget Code, must request from the State Treasury loans for the payment of pensions to cover temporary cash gaps. At the same time, the ministry did not specify why this time the PF failed to immediately request such a loan.
Pension Fund chief Oleksiy Zarudnyi, apologized and promised to prevent such failures in his future work.
According to the official, the situation with the payment of pensions has normalized, and from August 2 the PF promises to start financing of pensions and their payment - from August 4, in regular mode, in line with the schedule.
According to experts, pension payment delays in July, especially given the pre-election year and the struggle for public support ratings, can indicate systemic problems with the proceeds to the Pension Fund and the inability to overcome in the next five years the PF's UAH 140 billion deficit.
In addition, according to the senior financial analyst of ICU Group, Taras Kotovych, in the previous months there was more money on the single treasury account, so the loan would be taken earlier to be later returned, but in July, the Treasury was accumulating funds for debt repayments and VAT refunds.
"And until they reached the needs of the reserve, they did not give loans to the PFU," the expert believes.
Government's gas maneuvers
In the outgoing week, the government once again chose not to raise the price of gas for the population, retaining it unchanged until September 1. However, earlier they would extend the term for two months, not just one. This may indicate that the Cabinet already has a vision of resolving the issue with pricing of gas for the population, which is one of the key topics of Ukraine's negotiations with its key lender, the International Monetary Fund.
Concerning the IMF, the government notes that the talks are ongoing, emphasizing that the price of gas is too sensitive a topic to be approached exclusively in a mathematical way.
Meanwhile, acting finance minister Oksana Markarova assured that the government is counting on the rapid resumption of IMF funding. In her opinion, negotiations on the terms of the new tranche - budget execution and gas tariffs - are constructive.
"We're doing everything possible on our part to do this quicker. You know, the tranche goes to the NBU reserves and not to the budget, but our other budget financing is dependent on that so we are doing everything possible to do it as quickly as possible. I wouldn’t name a date right now but I hope it's going to be soon," Markarova stressed.
This week, the Financial Stability Council, which includes heads of all financial regulators in Ukraine, also recalled of the need to fulfill tasks set by the IMF to continue cooperation with the key lender.
"The Council stressed that the implementation of structural reforms envisaged by the program of cooperation with the IMF is extremely important for macrofinancial stability and access to financing from the IMF and other international partners. This is especially important for maintaining the demand for Ukrainian sovereign bonds amid the global trend of investors' withdrawal from assets of emerging markets, and taking into account the need to make significant payments on external public debt within the next two years," the Council said.
And while negotiations on gas and budget are underway, the government took the important decision to ensure the country's energy independence, on making trnsparent all geological data and starting from September 1 a pilot project for holding e-auctions for the use of subsoil.
According to the Prime Minister, the step will allow Ukraine increasing own gas production and halting gas imports it, which in turn will make it possible to significantly reduce gas prices inside the country.
"As soon as we refuse from imports, we will immediately decisively reduce gas prices and will not be influenced by the international gas price environment. This is our strategic task. It's not about handouts and discounts, but about a systemic final price reduction, which is possible only if we produce gas in volumes necessary for the population and industry," Groysman stressed.
Small-scale privatization launched
The outgoing week saw a long-awaited start of the sale of small-scale state-owned companies that are not among the strategic ones for the Ukrainian economy.
"Our government started this process for the first time. I am interested in making everything open, transparent and competitive. I'm saying this to the whole country. For ages, it was like this: facilities that are not strategic for the economy were maintained to maybe sell them one day and buy something else…. We are changing this, breaking the old system and entering the data into ProZorro [e-procurement system]. Now, any entrepreneur will be aware of what's been put on sale, so they will be able to buy the right building or some facility without contacting district or regional authorities," PM Groysman said, commenting on the privatization start.
According to Groysman, effective sales of state assets mean great support for small and medium-sized businesses as they give impetus to the development of economy and communities.
"I see my task in supporting the [ProZorro] team with all tools available, so that we shift the layers of problems that had not been addressed for a decade making the country weaker. Now we have an excellent opportunity. Let the sales start from the first 18 lots. Then there will be thousands of them. Our task is to make the 'future' come as soon as possible," Groysman said.
A list of more than 700 smaller-scale companies (whose value is under UAH 250 mln) put up for was prepared by the State Property Fund. Their privatization, as a rule, will be carried out through the ProZorro system. According to SPF acting head Vitaly Trubarov, now all SOEs that are put for sale in 2018 are being introduced into the system, while first bidding announcements will appear on July 27-31.
In spite of the fact that starting auctions can be held only in early September, since applications from those interested in acquisition will be accepted within 35 days, it is still a positive signal both for the state budget (real funds will be attracted to the treasury) and for the enterprises (they will be acquired by new owners for their further development).
The next week also promises to be rich in economic events - the National Bank will publish preliminary data on budget performance in 1H 2018, the Treasury will report on the balance of funds in its single account, as well as report on the budget filling for July, which will help analyze whether there are systemic problems in public finance and whether the government will have to cut spending to stay in line with the program of cooperation with the IMF.