At the end of last week, Finance Minister Viktor Pynzenyk reported on the implementation of Ukraine's state budget for 2005. In his opinion, the country ended last year quite successfully, and the head of the Finance Ministry sees no serious factors in the current year, including the rise in gas prices, that could shake the stability of the country's financial system.\t

– How do you assess the implementation of the state budget's planned indicators last year?

– Despite the many difficulties in the economy that we had to face last year, the 2005 budget was fully implemented. The revenue plan of the general fund of the state budget was overfulfilled by 0.9 billion hryvnias, reaching 84.4 billion hryvnias. Thus, a record revenue increase was achieved, which is essentially equal to the total revenues of the two previous years and 63% higher than in 2004. And the revenue growth in 2005 exceeds the growth of nominal GDP threefold, whereas in 2004 it was less than the growth of nominal GDP.

Inflation came out 2% lower than in 2004 and by the end of the year reached the planned 10.3% of GDP. We received a record increase in currency reserves – 2 times compared to 2004.

– Why did the implementation of all these planned indicators become possible against the backdrop of falling GDP growth rates?

– We managed to achieve serious de-shadowing of the economy, and indeed managed to eliminate the shadow schemes that had been operating until now in a number of sectors, especially in taxation. That is precisely why we achieved budget implementation. Last year we received the record VAT revenue increase of the past 5 years – 2 times more than for all of 2004, or more than for 2003 and 2004 combined!

One of the secrets behind the slowdown in GDP growth is hidden, for example, in the sharp reduction in wholesale trade indicators, and it was precisely this sector that most affected the statistical deterioration of economic indicators. In 2005, it became impossible to use many shadow schemes, and we have a decline in this sector. In 2006, the comparison base will be cleaned up, and GDP growth indicators will be oriented toward more reliable data than was the case in 2005.

– In the middle of the year, the situation with VAT reimbursement was critical, but by the end of the year you promised to reimburse all overdue debt...

– The VAT reimbursement plan was overfulfilled, and by the end of the year we have 13.3 million in reimbursed VAT. Overdue VAT has been reduced 5 times compared to July 2005. At the end of the year, we left outstanding debt of no more than 642 million hryvnias.

– According to many estimates, due to the new gas prices, the country's budget will suffer serious losses...

– We are currently assessing possible additional expenditures for the budget at a price of $95 per 1 thousand cubic meters. For now, we preliminarily estimate these losses at around 500 million hryvnias. But research into the impact of gas price increases on the country's economy and state budget continues, and the loss estimate may be adjusted in the coming months. At present, it can be said that a price of up to $95 per 1 thousand cubic meters is not critical for the country.

– How did your conflict with Kyiv over the recalculation of 1 billion hryvnias from the state budget to the capital's budget end?

– Kyiv failed to fulfill its plan by the end of 2005, possibly because in 2005 the provision that allowed it to claim this 1 billion hryvnias based on the results of 2004 was no longer in effect. We complied with the court decision. According to the calculations that we and the State Treasury made on the instructions of the Cabinet of Ministers, Kyiv's budget had no right to claim them. Whether I agree with this court decision – my position is known, but today I have no right to comment on its decision. Precisely because we had to pay Kyiv this 1 billion hryvnias, our nationwide deficit increased to 8.6 billion hryvnias.

– Did you manage to stay within the planned deficit size, and what happened with the state debt?

– We managed to reduce both the deficit and the state debt even relative to the planned indicators. The deficit of the general fund of the state budget by the end of the year amounted to 8.6 billion hryvnias (2% of GDP), whereas the planned indicator was within 10.2 billion hryvnias.

– Will you go out with borrowings this year?

– Perhaps in February we will go out for small borrowings with a primary placement of domestic government bonds, at least so that the market does not forget that there is such a borrower as the Finance Ministry. But we currently see no strict necessity for borrowings on either the domestic or external market. This year we will borrow not because of financing needs, but for certain market signals and support. Because this month we have not borrowed a single kopiyka, but we have already repaid about 300 million hryvnias, reducing external debt. External borrowings are currently inadvisable due to the fact that one needs to enter this market with large sums. Ukraine's last loan in autumn 2005 for EUR 600 million at 4.95% was close to the minimum amount.

Published in the newspaper "DELO" No. 61 of January 23, 2006.