print
05.12.2008
Credit-Rating: Survival Test for Local Budgets
Credit-Rating notes that decline in indicators of country`s social and economic development, which effects became evident in already 4Q2008, has negative impact on local budget revenues under their high expenditures for financing the budget-funded sector.
October and November 2008 saw decrease in the employment rate and cutbacks in workweek at many companies operating in real economy sector. This mainly has been prompted by decline in output rates of the majority of export-oriented national companies, decrease in volumes of residential and non-residential construction, and consequent slack in related sectors.
All of these trends, which are expected to aggravate in 2009, prompt shrinkage in salary fund, and consequently, decline in gains from individuals` tax, which is currently the key source for fueling local budget revenues excluding transfers. Under such circumstances, the measures taken by the local authorities can not change the situation drastically due to limited resources and opaque nature of future actions to be taken by the central authorities.
The situation is aggravated by suspension in reforming the budget-affecting legislation, which is aimed at strengthening financial base of local self-governments, and in approved draft of State Budget for 2009, which sets forth volumes of inter-budgetary transfers and other norms, necessary for funding local budgets. The Budget draft, approved by the Parliament in first reading in September, was withdrawn by the Government in November for revision due to changed economic environment.
Credit-Rating believes that in case of failure to pass the State Budget and a number of drafts necessary for enhancements in revenue sources of local budgets and for establishing procedures for quick redistribution of budget funds, the effects from crisis may grow, which will have negative impact on solvency of the majority of Ukraine`s municipalities.
For more information, please contact:
Information and Communication Department
Sergey Rozumyak +38 044 490 25 50
SRozumyak@credit-rating.ua
