Ukrainians are used to a few days a year without hot water as sizzling summer temperatures give the nation’s state-run utilities a chance to fix leaky pipes. This year, the stoppages have stretched into months.
“It’s like living in the middle ages,” said Olga Tymofeyshyna, a 25-year-old bank worker from Kamyanets-Podilsky, about 50 miles from the border with Moldova. “Because of the government’s inability to pay its bills we’re suffering from a lack of basic services. We’re very angry.”
In addition to hot-water shortages, street cleaners in the western town of Stryi threatened to block one of the former Soviet republic’s busiest highways this month, complaining they hadn’t been paid since April. In nearby Lviv, Ukraine’s seventh-biggest city, the treasury has blocked cash for school renovations, including money donated by parents.
Ukraine, which was awarded more financial aid than any eastern European nation in the past five years, is struggling to recover from its second recession in four years and is “one step away” from a balance-of-payments crisis, Capital Economics Ltd. says. The fiscal gap has more than tripled from 2012, while cash in the treasury’s budget-spending account has plunged to a decade low. Months of talks have failed to bring a new bailout.
“It’s a tricky situation -- revenue can’t meet spending because the budget assumes unreal growth,” said Alexander Valchychen, chief economist at ICU investment bank in the capital, Kiev. “The cash balance at the government’s treasury account is chronically low.”
Ukraine’s fiscal gap widened to 22.5 billion hryvnia ($2.8 billion) in the first six months of the year from 6.7 billion hryvnia in the same period of 2012, the Finance Ministry said this week.
The budget is based on projected economic growth of 3.4 percent, while the European Bank for Reconstruction and Development forecasts a 0.5 percent contraction as Europe’s debt crisis curbs demand for steel, Ukraine’s main export earner.
Ukraine’s economy shrank 1.1 percent in the first quarter from the same period a year ago, while industrial production fell for the twelfth months in a row in June, sliding 5.7 percent, according to the state statistics data.
The budget’s growth assumption will be revised once results are in for the first nine months of the year, Halyna Pakhachuk, head of the Finance Ministry’s debt department, told reporters July 16 in Kiev. Fulfilling the existing budget “isn’t easy,” she said.
The State Treasury’s account balance dwindled to 3.8 billion hryvnia as of July 1, the lowest level for that month since 2003, according to its website. Wage arrears jumped 11 percent from the previous month in May to 421.5 million hryvnia, Trade Union Federation data show.
Residents of Ivano-Frankivsk, a town in western Ukraine, where cash to fix roofs and overhaul apartment elevators hasn’t been received from the government, have taken matters into their own hands.
“Treasury! You owe Ivano-Frankivsk 2.6 million hryvnia for hospital repairs,” reads one of several red-and-yellow billboards erected next to streets and signed by the “town inhabitants.”
Reports of unpaid bills are false, the Treasury said July 12 by e-mail. Allocation of budget funds is being carried out in accordance with the law, the Finance Ministry said July 8 in a statement on its website.
Far from acknowledging spending delays, President Viktor Yanukovych, who faces re-election in 2015, said last month that it’s “desirable” for budget expenditure to be increased, calling for a mid-year review of the budget. Lawmakers began their summer break last week without fulfilling his wish.
Yanukovych instructed the government today to find resources to purchase ambulances and increase premiums to emergency doctors by Sept. 2. It should also ensure funding for a Yanukovych social program for children is maintained, according to a statement on the presidential website.
Ukraine has sold $2.3 billion of Eurobonds this year to stave off a third International Monetary Fund bailout in four years, with the government refusing to meet demands by the Washington-based lender to cut energy subsidies that damage state finances.
The yield on the government’s dollar bond due 2023 has risen to 9.327 percent from 7.599 percent when it was sold in April, data compiled by Bloomberg show. The cost to insure state debt against non-payment for five years using credit-default swaps has surged to 796 basis points from 627 points at the start of the year, behind only Greece and Cyprus in Europe.
Reserves at the central bank fell to a six-year low of $23.1 billion in June as Ukraine repaid $1.1 billion of Eurobonds. The slump “serves as a reminder that Ukraine’s fragile external position continues to keep it one step away from a full-blown balance-of-payments crisis,” London-based Capital Economics wrote July 8 in an e-mailed note to clients.
The consequences are starting to be felt in Kiev.
Pavlo Golov, a teacher at the capital’s National University of Theater, Cinema and Television, is still awaiting his vacation pay, which is usually disbursed July 1.
“The accounts department blames the treasury and told me they don’t know when the money will be paid or whether it will come all at once or in chunks,” according to Golov, 28. “They said I must wait and need to be patient.”