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Ukraine on verge of bankruptcy - Yatsenyuk

The country lacks funds, and the overall volume of the fiscal gap totals 289 billion hryvnias, says parliament-appointed prime minister

KIEV, March 27. /ITAR-TASS/. Ukraine is on the verge of economic and financial bankruptcy, Arseniy Yatsenyuk, appointed by the country’s unicameral parliament, the Verkhovna Rada, to the post of prime minister, said at a parliamentary session Thursday.

The situation in Ukraine comes after a coup in the country in February that occurred after months of anti-government protests, which often turned violent. President Viktor Yanukovych had to leave Ukraine citing security concerns last month.

The crisis deepened when the Republic of Crimea, which did not recognize the new self-proclaimed Ukrainian authorities in Kiev, signed a treaty with Russia to become its constituent member on March 18 after a referendum two days earlier in which most Crimeans voted to secede from Ukraine and join Russia.



Economy in decline

According to Yatsenyuk, inflation in Ukraine in 2014 will total 12-14%. Besides, the fiscal deficit volume has already exceeded 289 billion hryvnias (some $28 billion).

“Ukraine is on the brink of economic and financial bankruptcy. The country lacks funds. The overall volume of the fiscal gap totals 289 billion hryvnias,” he said.

The Ukrainian GDP’s decline in 2014 will reach 3%, the parliament-appointed Ukrainian premier said.

“We will see a drop like this in case we adopt a package of stabilization measures proposed by the government. Otherwise, we are facing default - minus 10 percent of GDP,” Yatsenyuk said.

The Ukrainian state debt currently stands at 53% of GDP, or 800 billion hryvnias ($75 billion), he added.

The total debt of state companies is 140 billion hryvnias (over $13 billion). In particular, the debt of national oil and gas company Naftogaz Ukrainy to creditors exceeds $7.7 billion; the debt of state road agency Ukravtodor stands at 37 billion hryvnias (over $3.3 billion); the debt of Ukrainian Railways totals 24 billion hryvnias ($2.2 billion).

“Thus, if these debts are added to the fiscal deficit of some 289 billion hryvnias ($28 billion), the overall deficit will equal some 500 billion hryvnias ($45 billion),” Yatsenyuk said.

On January 1, 2013, Ukraine’s gold and currency reserves stood at $34.6 billion, and now it only totals $15 billion.


Gas prices

Speaking of the price for Russian gas, the Ukrainian premier said it will total $480 per 1,000 cubic meters for Ukraine from April 1.

“We have calculated the problems of Naftogaz Ukrainy with account for these prices. It turns out that the current deficit of the company in 2014 will stand at 33.4 billion hryvnias (some $3.3 billion),” Yatsenyuk said.

Russia slashed the natural gas price for Ukraine to $268 from some $400 per 1,000 cubic meters after the Ukrainian authorities suspended the signing of an association agreement with the European Union at a Vilnius summit in November 2013 opting for closer ties with Moscow instead.

The refusal triggered mass anti-government protests in Ukraine, which often turned violent and eventually ended with a coup in February. Russia does not recognize the new Ukrainian leadership saying President Yanukovich is the country’s legitimate leader.

Russian energy giant Gazprom recently said the price for gas to Ukraine would be higher from April saying Moscow's partners in Kiev do not fulfill agreements reached when the lower price for Russian gas was discussed.


Ways out of crisis

In the current situation, the Ukrainian government proposes a number of tough measures to overcome the economic crisis. “Either these measures are taken, or the country will face default,” Yatsenyuk reiterated.

“At the first stage, it is necessary to cut expenditures by 45.8 billion hryvnias ($4.3 billion). This will be done through cutting budget expenditures and in particular through reducing social expenditures,” he said.

“We plan to raise taxes on big businesses,” Yatsenyuk continued. “We plan to raise the rent for using natural resources, raise the fee for oil and gas condensate, raise excise duties on beer, tobacco and alcohol.”

Besides, revenues from bank deposits will be taxed and a progressive taxation scale will be introduced for Ukrainians.

Proposals have been voiced to cut the staff of state power bodies and privatize the property of the State Property Management Department.

“We plan to privatize property of the State Property Management Department and slash the number of state power bodies’ employees by 10%. Now they number 249,000 people; we plan to cut them by about 24,000,” the premier said.

Yatsenyuk proposed calculating pensions for officials working in executive and judicial power bodies, as well as law enforcement officers, “the same way the pensions are calculated for all Ukrainians”, which means 70 percent of salaries.

Another source of revenues, according to Ukraine’s cabinet, is a tax on the rich.

“The government actually believes it necessary to impose a tax on wealth,” Yatsenyuk said, adding that the talk was about “introducing a progressive taxation scale for nationals’ revenues”.

“People who earn over 300,000 hryvnias ($27,000) will pay a 20% tax, those getting more than 500,000 hryvnias (over $45,000) will pay 25%,” he said.

Yatsenyuk said 300,000 Ukrainian nationals will be taxed that way. “These 300,000 have the financial resource that constitutes 60% of Ukraine’s financial assets,” he said.

“So 1.7% of rich Ukrainians should pay taxes for the remaining Ukrainians to feel that the time for social justice has come in the country,” Yatsenyuk said.


Communal prices for citizens

Gas tariffs for the population will be increased in Ukraine from May 1. Low-income citizens will receive targeted aid.

“We propose the most ambitious program to support low-income Ukrainians. Now 1.4 million families, which means about 5 million citizens, get subsidies. After the government’s proposals are adopted, the overall number of households that will fall under the program to support low-income strata of the population will grow to 4 million,” Yatsenyuk said.

In this way, 30% of the Ukrainian population will be covered by targeted aid, he said, whereas low-income Ukrainians will get assistance of up to 500 hryvnias ($47) a month.

Yatsenyuk said that residents of Ukraine pay on average $84 per 1,000 cubic meters, whereas in Russia, “the key gas producer”, the tariff for the population is $128 per 1,000 cubic meters; the tariff in Moldova is $470 and in Bulgaria, $325.

Earlier, the government said gas tariffs for the population will grow 50 percent from May 1.


International assistance

Ukraine hopes to obtain $13.6 billion of international financial assistance soon.

“The overall volume of financial assistance we can get by approving the government’s proposals on financial stabilization will total $13.6 billion,” Yatsenyuk said.

The World Bank is expected to contribute $1 billion, the European Union will contribute $2 billion for macro-financial assistance, the United States Senate will provide $1 billion, the Canadian government will give $200 million, and the Japanese government is to contribute $100 million.

Besides, Yatsenyuk said, Poland will provide $100 million, the European Bank for Reconstruction and Development, $200 million, $170 million will be contributed by the European Investment Bank and the International Finance Corporation will provide $400 million.

“We have also agreed on state guarantees for projects being implemented worth up to 25 billion hryvnias ($2.3 billion),” Yatsenyuk concluded.