On February, 3, 2021, the Cabinet of Ministers approved the changes to the procedures for distributing the funds for social economic development, and de facto reintroduced the non-public deputy funds at the cost of subventions for social and economic development.

Since 2012, Ukraine has had a subvention for social and economic development of certain territories, or “socio-econ,” to put it simply. However, the budget programme intended to address the pertinent issues in the region turned out to be a hostage to the PR-campaigns of people’s deputies. As a result, billions of taxpayers’ funds were scattered to cover dozens (if not hundreds) of petty costs under UAH 50,000. 

However, in 2020, the Cabinet of Ministers partially  took into account the recommendations from the Civil Network OPORA and the Accounting Chamber on enhancing transparency in the allocation of the subventions, and approved a series of innovative changes. As a result, the subvention funds have been distributed between the regions virtually  equally , when for the first time in many years the deputies’ “wish lists” did not prevail.

But the “joy was short-lived” for taxpayers as many positive changes were repealed, while the previous version of the “Procedures and Conditions to Grant Subventions from the State Budget to Local Budgets to Implement Activities in the Social and Economic Development of Certain Territories” have been de facto resumed. The Table of Concordance can be viewed here.

Thus, key changes approved by the Government are as follows:

  1. It cancelled the placement of information plates (stickers) used to identify the facilities funded and/or co-funded at the subvention cost, and the installation of such plates (stickers) at the stated facilities.
  2. Ministry of Finance was returned to be a chief subvention administrator in place of the Ministry for Regional Development.
  3. The proportional distribution of funds between the regions, according to the number of population, has been canceled. 
  4. No subvention is planned to be allocated for COVID-19 containment.
  5. The deputy-controlled commission has been brought back (including at least 50% of the budget committee members).
MinFin Again

In February, 2020, the Ministry for Regional Development was finally appointed the administrator of the subvention funds. A decision was made by the Ministry for Regional Development to bring in line the procedures for the subvention funds distribution with the requirements of the Law of Ukraine “On State Budget for 2020”. The Law established that the subvention administrator shall be the Ministry for the Development of Hromadas and Territories. In fact, it is fully reasonable, as regional development is one of the focus areas of the Ministry. However, according to the new government’s decision, the subvention administrator shall be the Ministry of Finance, again, as it used to be before 2020.

Proportional Distribution Killed

Since 2012, for some minor exceptions, the distribution of subvention funds has been administered without any criteria. As a result, it was unbalanced. OPORA has multiple times  recorded the cases when the two Oblasts with a similar population size have been allocated with totally converse amounts. The issue also concerns the constituencies, when one region alone may receive several dozen millions, while the neighboring regions might receive none. It shall be kept in mind that the data analysis in subvention distribution over 2016-2020 highlights the political factors in the process of subvention administration. It reveals itself in the fact that the constituencies of MPs loyal to the Government received much more funds than the districts of the opposition MPs. 

Nonetheless, in February, 2020, the Government introduced for the first time the peculiarities of the proportional subvention distribution:

  1. 80% of funds – according to the region’s population size;
  2. 20% of funds – with account for the level of social and economic development of regions with respect to the GRP per capita (for the regions with this indicator under 75% of Ukraine’s average).

The second criterion was cancelled by the Cabinet in May, 2020; the first – in February, 2021. Therefore, a key criterion to distribute the funds shall be the “proposals” from people’s deputies. Again. 

Funds Distribution Commission of Deputies

The Cabinet of Ministers issued an updated resolution enforcing the control over the subvention distribution by people’s deputies:

  1. At least 50% of members of the respective commission to furnish the proposals for the distribution of subvention for social and economic development in certain territories are members of the budget committee. However, according to OPORA, in the previous convocation, the commission was in a full control of people’s deputies – 14 out of 16 commission members. 
  2. The government introduced changes to the current version of the rules for subvention distribution, whereas the commission shall not submit recommendations to include the proposals but rather make decisions to include them. Therefore, the commission has become a decision-making entity, rather than recommendatory.
  3. The government failed to approve the publicity and openness principles for the commission, even in part of making public the names of its members. 

Thus, the Government of Ukraine has proven they did not prioritize the proper development of regional infrastructure, whereas the UAH 6 bln of taxpayers’ money was not “the price high enough” to keep the people’s deputies loyal.

Civil Network OPORA negatively assesses the Government’s initiative on the process of subvention distribution to cover social and economic development, and believes it disables the efficient spending of budget funds, as well as contributes to the use of budget funds for media publicity and campaigning purposes by people’s deputies and political parties. 

For your information,  in the period from June, 2018, to July, 2019, OPORA observers recorded 2,724 cases of PR based on the budget resources coming from 147 MPs elected in the majoritarian constituencies, and 27 – elected under party lists.

Therefore, Civil Network OPORA hereby recommends to the Government:

  1. To re-allocate the subvention funds to the SFRD where more clear and understandable procedures are used for the distribution.
  2. To publish all proposals from people’s deputies submitted to the Ministry of Finance/Ministry for regional Development on the distribution of subventions for social and economic development of certain territories.
  3. To publish the minutes from the meeting of the Commission on Drafting Proposals for the allocation of subventions from the State Budget to local budgets to implement activities for social and economic development of certain territories.
  4. To enhance control over the use of budget funds.
  5. To close the door for using the budget resources for campaigning purposes, through awareness raising and due accountability.
  6. To account for other recommendations of the Civil Network OPORA and the Accounting Chamber on raising transparency in the subvention distribution.