Credit-Rating confirms the rating of Odesa at uaАА-, determines investment attractiveness at uaINV5 (the highest level) Credit-Rating confirms the rating of Odesa at uaАА-

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Expert Opinion

21.06.2010

Credit-Rating: New Budget Code to Reinforce Centralization of Ukraine’s Budget System

Credit-Rating believes that the reformation of the budget-related and fiscal legislation in Ukraine, which declared objectives include decentralization of public finances and reinforcement of financial system of local governments, will increase impact of central government on the regions’ budget policy. The introduction of additional requirements to municipalities and regions, as well as increased control on all stages of the budget process will result in limited powers of local governments in terms of budget relations.

The draft developed by the Government of Ukraine includes transferring certain sources of budget incomes (duty for special utilization of waters, payment of license issuing, etc.) and new and additional types of taxation included in the Tax Code draft (extra rate for profit tax) to local budgets. According to estimates of Ministry of Finance of Ukraine the additional funds to be gained by local budget will account for UAH23bn (which is 36% of total incomes of local budgets excluding subsidies in 2009).

In Credit-Rating’s view the communities will not have rights to dispose these funds on their discretion, as the local budgets will be delegated additional expenditures, which were previously disposed on central level (certain programs of social security and support to off-school education). Thus, the load on local budgets will be increased with the items, which planning and expending are part of the state policy (funding state social security) and are out of local government’s scope.

The agency notes considerable strengthening of powers of state authorities in terms of arrangement and coordination of the budget process on local level. Elena Samoylova, a Credit-Rating’s Head of Municipal Sector subscribes to the opinion that severe regulation and control by central government in local budget matters on one hand are aimed at improving efficiency of the national budget system, and on the other hand constrain powers of the local self-government and make local budgets more dependant upon the state budget.

Credit-Rating agency has operated in the Ukrainian market since 2001 being committed to assignment of the national scale ratings. The agency has assigned 1084 ratings.

As of June 1, 2010 Credit-Rating maintains monitoring of 635 ratings, in fact 492 of corporate, 96 of financial and 47 of municipal sectors.

Information on all credit ratings assigned in accordance with the National Rating Scale may be found in REUTERS and BLOOMBERG information systems.

For more information, please contact:
Information and analytic department
Sergey Rozumyak +38044490 25 50
SRozumyak@credit-rating.com.ua
Denis Rudenko
DRudenko@credit-rating.ua

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