Ukraine Cabinet boosts social payments earlier than planned

Макроэкономика 31.08.2015 Ukraine’s Cabinet of Ministers has begun to prepare for raising minimum wages, public servant wages, pensions, scholarships and wages as of Sept. 1, Prime Minister Arseniy Yatsenyuk said in a nationally televised address on Aug. 30. The initiative will cost up to UAH 10 bln of additional fiscal spending for this year, he said. The 2015 budget had initially planned for adjusting wages and social payments for inflation starting Dec. 1. Alexander Paraschiy: UAH 10 bln is not nearly a back-breaking sum for the budget in what’s obviously a gambit aimed at boosting the popularity of the president’s Solidarity party ahead of the Oct. 25 local elections. It will be effective because aside from the war, nothing is of greater concern to Ukrainians than their wages and social payments. It’s no coincidence this announcement came just three days after the debt restructuring announcement, which made such a measure possible. Despite its effectiveness, the move is disappointing at the same time considering that Ukraine has just stepped back from toeing the default abyss. The main consequences will be added inflationary pressure and tax burden on the economy. We believe it’s likely the Cabinet could hike taxes to compensate the heightened spending to keep the budget deficit unchanged (and keep the IMF satisfied as well).