On 10 February, the Governmental Committee on European and Euro-Atlantic Integration, International Cooperation, Security, Defense and Regional Development held a meeting. The Committee considered on this meeting draft Resolution of the Cabinet of Ministers of Ukraine, which suggests to amend the Procedure and Conditions of Receiving State Budget Subventions by Local Budgets for Social and Economic Development of Territories. The Government will take a final decision at a meeting.
Key changes, suggested for the Government's consideration are as follows:
- the Ministry of Regional Development shall be authorised to manage subventions instead of the Ministry of Finance;
- a proportional distribution of funds between regions based on the population size shall be introduced;
- a minimum financing for construction projects (new construction, reconstruction, restoration, overhaul) should be established.
- a system of co-financing from local budgets for projects and activities financed from the state budget is being introduced.
Let's consider them in detail.
The Ministry of Regional Development
The decision involving the Ministry of Regional Development was aimed to regulate the subvention distribution procedure in line with the Law of Ukraine on the State Budget for 2010. According to the Law, the Ministry for the Development of Communities and Territories shall be a subvention manager. This is quite logical, in fact, since the Ministry is directly focused on regional development besides other activities. The Ministry of Finance was the manager of these funds until 2020.
As for the allocation of funds, subventions will now be distributed between different budgets of oblasts and the city of Kyiv based on the following criteria:
- 80% of funds - based on the population living in the region;
- 20% of funds - with consideration of social and economic development of regions and based on the gross regional product per capita indicator (for regions with less than 75% of the average in Ukraine).
A similar approach works for the distribution of financing from the State Regional Development Fund. The distribution of funds was realised with no criteria before and, as a consequence, it was not even. OPORA has repeatedly noticed cases, when two oblasts with similar size of population received absolutely different amounts of financing. This problem also applies to constituencies, where tens of millions of hryvnias are allocated to one constituency, and another neighboring constituency receives nothing. We should also remember that the analysis of subvention distribution in 2016-2019 showed there are political factors than influence the process of subvention management. Thus, districts where MPs treat the Government loyally receive much more financing than districts represented by opposition MPs.
Minimum amount per object
According to the new Resolution, an estimated cost for construction projects (new construction, reconstruction, restoration, overhaul) should be above UAH 3 million. There was no minimum amount per project before. Subventions were often directed to small objects that MPs used for campaigning purposes. Thus, this indicator reached its top in the previous convocation of the Parliament in 2019, when two election campaigns took place. In 2019 over 40% of all financed objects costed UAH 50,000 or less.
Although the funds are being spent on small objects, the fact that MPs used budget funds in campaigning purposes is a bigger problem. Such amounts were usually allocated to buy printers, stage costumes, bicycles, etc. They split subventions to cover larger territory of districts.
Therefore, while introduction of minimum financing per construction object is a positive practice, it doesn't resolve ineffective spending of budget funds. To spend subventions more effectively, a minimum financing per an object or measure should be established.
The new distribution procedure also establishes co-financing of projects and measures in the following amounts:
- not less than 1% of the subvention amount - for the budgets of villages, their associations, settlements and cities of raion importance;
- not less than 3% of the subvention amount - for oblast and raion budgets, budgets of cities of oblast importance and budgets of UTCs;
- not less than 3% of the subvention amount - for the budget of Kyiv.
Civil Network OPORA welcomes Government's efforts aimed to improve the allocation of subventions on social and economic development. However, we believe that these changes are not enough to ensure more efficient use of budget resources and to prevent the misuse of budget funds for media and campaign purposes by MPs and political parties.
We would like to remind, that from June 2018 to July 2019, Civil Network OPORA's observers detected 2,724 cases of promotions on budget resources by 147 MPs elected in majoritarian districts and 27 party-list MPs.
Thus, Civil Network OPORA recommends the Government:
- Make the distribution of subventions on social and economic development transparent and based on clear criteria, or redirect subvention funds to the State Regional Development Fund (SRDF), which uses clear procedure to distribute subventions.
- Publish all the proposals of MPs sent to the Ministry of Finance concerning the distribution of state subventions on social and economic development of territories.
- Publish the meeting minutes of the Commission on Preparation of Proposals for the Distribution of Subventions from the State Budget to local budgets for realisation of social and economic development of certain territories.
- Strengthen oversight of the use of budget funds.
- Provide proper informing and reporting to prevent the use of budget resources for campaigning purposes.
Take into account other recommendations of Civil Network OPORA and the Accounting Chamber, and increase the transparency of the subvention distribution.
For comment, please contact:
Anatolii Bondarchuk, Analyst at Civil Network OPORA