MFSI/IBSER Project assisting in getting over the Budget Code constraints for the municipal financing
On 2 February 2011, MFSI/IBSER held a meeting with the representatives of the Association of Ukrainian Cities and the European Bank for Reconstruction and Development. The meeting focused on restrictions on the capacity of local budgets to implement infrastructure development projects that require significant additional resources. The restrictions have resulted from several factors.
Firstly, Article 18 of the Budget code puts a cap on the total amount of local debt and guaranteed local debt of not more than 100% of a local government’s development budget revenues. However, taking into account the considerable decline in the development budget revenues given the economic crisis, borrowing within the imposed limits will not be able to increase cities’ capacity to improve their infrastructure. At the same time, international finance organizations and financial institutions of foreign governments offer to financing on terms that basically allow the gradual repayment of the principal over a period normally longer than four years. Therefore, on the whole, the above restriction is unjustified, as it does not account for the real-life uniform debt burden on local budgets.
Secondly, the Ministry of Finance completely stopped approving local borrowing except for a few projects related to the EURO 2012 Football Championship. The Ministry justifies this refusal by the requirement of the Memorandum of Economic and Financial Policy concluded between
MFSI/IBSER have already held discussions on the above issues and brought them up for a public debate. Thus, the respective proposals, together with the proposals for amending the Budget Code, were forwarded to the First Deputy Head of the Presidential Administration, Iryna Akimova, and the Association of Ukrainian Cities on 14 January 2011.
The meetings have resulted in agreeing on proposals for resolving this problem and identifying further joint actions.
Glyanec