Government of Ukraine, 2004, “On the National Program of Reforming and Developing the Sector of Housing and Communal Services for 2004-2010,” Law # 1869 (Kyiv: Government of Ukraine.
Grant, H., 2003, “Pay and Benefits and Performance Management in the Ukraine Civil Service,” mimeo (Kyiv: United Kingdom Department for International Development).
International Monetary Fund, 2003, “Public Debt in Emerging Markets: Is it too High?” Chapter 3 in World Economic Outlook (Washington: International Monetary Fund).
International Monetary Fund, 2004, “Ukraine: Report on the Observance of Standards and Codes Fiscal Transparency Module,” (Washington: International Monetary Fund).
Reinhart, Carmen, Kenneth Rogoff and Miguel Savastano, 2003 “Debt Intolerance,” in Brookings Papers on Economic Activity: I, Brookings Institution, pp. 1–62.
World Bank 2002, “The Health Sector in Ukraine: Discussion Paper on Selected Health Care Reform Options,” mimeo, (Washington: World Bank).
Prepared by Mark Flanagan, with input from Ihor Shpak (Kyiv Resident Representative’s Office).
The most recent available country policy and institutional assessment by the World Bank (2001) shows a large gap in the public sector management area between Ukraine and more advanced EU accession economies (whose average debt load is expected to amount to 32 percent of GDP at end-2004). Ukraine’s average score was 3, versus an average of 4.7 for the EU accession countries. Since 2001, the gap has shrunk: Ukraine has improved in the ‘quality of budget and financial management’ category, reflecting implementation of the budget code, but this has been offset by increasing problems with revenue mobilization (i.e., the VAT refund problem).
In mid-September, the authorities announced that pensions would be lifted to the subsistence level of Hrv 284 per month. Financing such an increase could add 3½ percent of GDP to the deficit in 2005.
In general, and abstracting from asset sales, the debt would evolve according to ∆ Debt = (r–g) Debt - pb, where r is the real interest rate, g is the real economic growth rate, and pb is the primary balance.
This could accommodate deeper cuts in existing payroll taxes, to allow the introduction of a new payroll tax for health care (an option which the authorities have considered).
Full depreciation in an accounting sense does not imply unusable.
The compression ratio compares the compensation of the highest and lowest paid civil servants. A ratio of 12-13 is thought necessary to provide adequate incentives for staff to take on additional responsibilities.
This assumes that 2 percent of the measured annual economic growth over the next 6 years is recognition of informal economy activity, and that payroll taxes are cut by one eighth.
The experience in the Czech Republic suggests that this may also curtail informal payments. See World Bank (2002).
In mid-September, the authorities announced that pensions would be lifted to the subsistence level of Hrv 284 per month. This increase raised the replacement ratio to 50 percent, at a gross price of 3½ percent of GDP per annum.
Bulgaria, Croatia, Estonia, Latvia, Lithuania, Moldova, Romania, Russia, Slovenia combined have an average general government ratio of about 37½ percent of GDP.
This figure has been adjusted for projected declines in the VAT rate.
Import exemption figures have been adjusted for a postulated decline in tariffs.
It would be important to conduct a functional review of government to help identify employment surpluses.
Separate savings may also be realized due to a planned 20 percent cut in military personnel. A full discussion of defense reform is, however, beyond the scope of this paper.
The productivity ratio is defined as total VAT revenue as a percentage of GDP divided by the standard rate.
The Ukrainian ratio has been adjusted for the recommended removal of most remaining exemptions, and the revenue estimate adjusted for the expected reduction of the VAT rate.
The state property fund also manages or holds an interest in, another 1,400 companies.