Proposals of IBSER Experts Included
28 April 2010
Proposals of MFSI/IBSER Experts Included in 2010 Budget
The proposals of MFSI Project, implemented by Institute of Budget, aimed at increasing creditworthiness of cities have been included in the 2010 Budget Law of Ukraine. Part Three, Article 18 of the Law grants local governments the right to independently deposit temporarily free resources of local budgets on a competitive basis.
No such right was granted in 2009, since placement on deposits was then regulated by the Cabinet of Ministers of Ukraine. Notably, the Cabinet of Ministers (Decree No.52 of 28 January 2009) allowed such placement only with State-owned banks and banks in whose capitalization the State was involved.
This approach made it impossible for local governments to strengthen their credibility as borrowers by depositing temporarily free funds with institutions of creditor banks. In turn, this has led to reduced incentives for commercial banks to work with local government. As part of MFSI Project tasks, the Institute of Budget has repeatedly sent its proposals to interested ministries and other parties as well as has pointed to the need of lifting this restriction.
Therefore, the inclusion of this proposal will promote an enhanced creditworthiness of cities, which is one of the key components of the Municipal Finance Strengthening Initiative Project, implemented by IBSER with support of USAID. This would allow to implement financing of local programs even under severe shortage of budget resources.
The 2010 State Budget Law of Ukraine Expands the Range of Sources for Financing Municipal Infrastructure Improvement Projects. Article 13, Law on the State Budget of Ukraine for the Year 2010 provides for a possibility for local governments to issue guarantees for the credits provided not just by international financial organizations, but also by foreign government institutions.
In previous years, this possibility was only limited to international financial organizations, such as World Bank and EBRD. This restriction did not allow local governments’ attracting additional cheap financing, since unlike commercial lenders, the cost of borrowing from foreign government institutions is significantly lower (about 6%) with longer loan periods.
As part of tasks of the Municipal Finance Strengthening Initiative Project, IBSER drafted a new provision of the Law and implemented all the activities to achieve its approval. This would help increase financing for municipal infrastructure development projects, in particular, energy-saving projects.
Glyanec