The State Budget of Ukraine provides significant subventions for regional social and economic development each year. This year, like two previous ones, the State Budget budgeted 5 billion UAH on subventions. However, taking into consideration the imperfection of subvention distribution process, two election campaigns, and the change of both state leaders and ⅘ of majoritarian MPs, only 2 billion 728 million UAH were spent (55%). Moreover, the Government had even passed in late September a strange decision asking to "return funds for social and economic development of territories" that were transferred shortly before. Civil Network OPORA inquired the Ministry of Finance to see the decision, but the latter has failed to provide it. Besides that, it hasn't yet published information on subvention distribution in open data format, as the Cabinet of Minister's Resolution #835 demands. Now, let's focus on another topic.

Having analysed the indicators of subvention distribution in 2019, one may confidently say that subventions for social and economic development of territories have failed to realize these goals and, what even worse, became a platform for cooperation between territorial communities and politicians, striving to gain electoral benefits for the next election. This budget program has become a “golden ticket” for 33 MPs. They used subventions for campaigning, and have got successfully re-elected to the Parliament.

Such situation became possible due to the dissemination of financing among tens and hundreds of unsystematic, or even trivial expenses. Thus, in 2019, 2 billion 728 million UAH were distributed between 7,465 (!) projects/activities. To compare, all the funds from the State Fund for Regional Development over the past five years (18.7 billion UAH) have been allocated for the realization of only 3,730 projects. Such practice not only shows there is no planning, justified priorities and clear criteria in assessment of projects, financed from the State Budget, but also proves such fund distribution to be politically motivated, aimed at quantity, but not quality of spending. As a result, more than 40% of all objects costed UAH 50,000 or less. An average size of a subvention has decreased in almost a half, amounting 365 thousand UAH in 2019.

Distribution within oblasts

OPORA has calculated which oblasts received the biggest and the smallest subvention financing for social and economic development in 2019. Thus, compared to the last year's research, Vinnytsia and Kharkiv oblasts have lost their leading positions. Instead, Kirovohrad oblast and the city of Kyiv entered the top five for the first time. Thus, the following oblasts received the biggest amounts of subvention funding in 2019: Ivano-Frankivsk oblast - 288 million UAH (10.6% of the total allocated subventions), the city of Kyiv - 254.5 (9.3%), Kirovohrad - 188.7 (6.9%), Vinnytsia - 180.8 (6.6%), and Chernihiv - 163 (6%). It is easy to calculate that 5 regions on the list received almost 40% of the state funding.

Instead, the smallest amounts of budget financing were allocated to the following oblasts: Kharkiv - UAH 58.7 million, Volyn - UAH 57.9 million, Cherkasy - UAH 56.9 million, Zaporizhia - UAH 19.5 million and Luhansk - UAH 10.3 million.

It is worth mentioning that the following oblasts have had abnormally big number of projects financed: Mykolaiv - 675, Kyiv - 610, Sumy - 540, Zhytomyr - 529, Chernivtsi - 464 and Chernihiv - 455.

District financing

Taking into consideration that MPs directly participate in the allocation of state subventions, and unequal distribution of funds among different regions of Ukraine, we have analyzed how the funds are divided between majoritarian districts.

Thus, 27 districts haven't received any subsidies in 2019, and 6 districts received less than one million hryvnias of state financing. At the same time, another 50 districts received from one to ten million hryvnias financing. As we can see, one third of districts haven't received adequate state subvention financing again.

It should be mentioned that 19 districts (10%) received financing in amount of UAH 892 million. This is one third of the total amount of subventions, allocated for financing of objects and measures in Ukraine.

More than UAH 86 million (30 projects) was allocated to district #88 (Ivano-Frankivsk oblast), represented byYurii Tymoshenko (the People's Front) in the Verkhovna Rada. A similar amount - UAH 85.4 million (only 6 objects) was allocated to 12 districts (Vinnytsia oblast), represented by Alexey Poroshenko in the Verkhovna Rada of VIII convocation.

District #99 (Kropyvnytskyi), represented by Konstantyn Yarynich from the Petro Poroshenko Bloc, received UAH 73 million (70 objects).

District #94 (Kyiv oblast) received almost UAH 62 million (157 objects). In the 2014 parliamentary elections, Viktor Romanyuk (the People's Front) was elected there under majoritarian component. However, during the 2019 elections, the First Deputy Head of Petro Poroshenko Bloc Ihor Kononenko was quite active in the district, and his activities included a potential use of budget funds for indirect campaigning. The same amount was allocated to district #204 (Chernivtsi oblast), represented  in the Parliament by the Head of People's Front faction Maksym Burbak.

Other districts leading by the amount of budget subventions received in 2019 are: district #102 (Kirovohrad oblast) represented by Oles Dovhyi - almost UAH 56 million, district #25 (Dnipropetrovsk oblast) represented by Maksym Kuriachyi - UAH 52.5 million; district #205 (Chernihiv oblast) Serhii Berezenko - 51 million UAH[1].

Fragmentation of financing

Effective spending is the major challenge for state subvention system, aimed to guarantee sustainable regional development. However, the amount of unsystematic, or even trivial expenses is striking every coming year. While only 13% of state-funded projects cost 50 thousand hryvnias or less in 2016, the amount has increased to 40% (!) in 2019. Besides that, the average amount of state subvention has also decreased - from UAH 660 thousand to UAH 365 thousand (or 44.7%) compared to 2016.

Thus, it's not the first year we notice the lack of justified priorities for state development in subvention spendings. Nobody gives official comments on the situation, but such principles in the spending of state resources are totally within the logic of campaigning goals. However, is worth at least to study 2,724 cases where 147 deputies used budget resources for self-promotion, detected by observers of Civil Network OPORA from June 2018 to July 2019.

It's worth to mention that at least one third of financed projects (2,274 objects) are located within 10 election districts. Thus, expenses in many districts are rather small and non-systemic.

District #161 (Sumy oblast), represented by Mykola Lavryk received the biggest number of subventions in 2019 - 293. District #198 (Cherkasy oblast), represented by Serhii Rudyk, received 289 subventions, district #198 (Zhytomyr oblast), represented by Pavlo Dziublyk, received 266 subventions, and district #167, represented by Oleh Barny, - 242. The following districts have also received more than 200 subsidies each: district #202 (Chernivtsi oblast, represented by Ivan Rybak in the Parliament), district #130 (Mykolaiv oblast, represented by Andrii Vadaturskyi), and district #127 (Mykolaiv oblast, represented by Borys Kozyr).

It should be mentioned that the average amount of subventions for each of these districts did not exceed UAH 100 thousand (more than 3 times less than the average in Ukraine). Besides that, the average size of 293 subventions allocated to district #161, represented by Mykola Lavryk, was only UAH 40 thousand. 

Conclusions

The situation with distribution of subventions on social and economic development has not changed compared to the previous years:

  1. Approval mechanisms and procedures for the selection of objects (measures) subject to subvention, are non-transparent and unclear. There are no public consultations concerning top priority sectors for social and economic development.
  2. The amount of financing, allocated for different regions (including districts or rains) of Ukraine, is absolutely unequal.
  3. The allocation of subventions on social and economic regional development is totally “politicized”. The distribution of subventions is realized “manually”.
  4. The financing is scattered among projects, which priority may be put in question, what makes it impossible to reach long-term results, and the list of financed projects becomes more and more unsystematic.
  5. The Cabinet of Ministers systematically ignores OPORA's recommendations on improvement of the subvention distribution procedure.

In addition, we should consider another two aspects after politically active 2019. Firstly, the fact that subventions on social and economic development are being used for campaigning purposes (2,724 cases detected from June 2018 to July 2019). Secondly, the new Government has in fact "conserved" the system, what is a so-called "compromise" costing UAH 2 billion for Ukrainian taxpayers.

About 2020 subventions

On October 18, the Parliament supported the draft State Budget for 2020 in the first reading. The document did not provide funds for subventions on social and economic development. 

Immediately afterwards, OPORA sent a letter to the Cabinet of Ministers and the Ministry of Finance, proposing to meet and jointly develop transparent mechanisms for the distribution of state subventions for 2020. The Ministry of Finance replied that the draft Budget for 2020 does not provide subventions on social and economic development.

However, despite the answer from the Ministry of Finance, the MPs have been preparing proposals for the draft budget. 

Thus, on October 18, Editor-in-Chief of the Livyi Bereh edition Sonia Koshkina posted in her Telegram channel a spreadsheet of parliamentary inquiries concerning the financing of districts from subventions on social and economic development for the next budget year. The list included 67 MPs. Most of them represented the Servant of the People faction. The total amount of financing is a little bit over 2 billion UAH.

On November 5 Government sitting, when the draft budget was presented for the second reading, Oleksii Honcharuk notedthat the decision to return subventions into the budget is a normal, reasonable compromise with the Parliament. 

On November 14, the Parliament approved the State Budget in the second reading. Thus, it budgeted UAH 2 billion on subventions.

On December 11, President of Ukraine Volodymyr Zelenskyi signed the Law on State Budget. 

Subvention research tool

Civil Network OPORA has developed an online tool  subventions.org.ua for a detail analysis of subventions on social economic development. With the help of interactive maps on the portal, you can analyze how subventions were distributed between oblasts and districts in 2015-2019. Besides that, you can use the resource to download the entire list of subventions allocated in 2015-2019 in open data format (.csv and .xlsx). 

The portal subventions.org.ua is being systematically updated with new tools. For example, the latest one is search and visualiser based on key words (i.e. playground). With this tool, you can easily analyze which purchases were made, which districts had the biggest number of them, and how much budget funds was spent.

[1] In this material, Civil Network OPORA researches into the distribution of subvention on social and economic development, and its evenness in the first place. Allocation of funds for a certain district does not necessarily mean an MP representing the district in the Parliament has influenced the process.

Reference:

The report was prepared under the project “Misuse of budget resources: case studies, rising citizen awareness, preventing the consequences of state resources' misuse”, being realized by Civil Network OPORA, supported by the International Foundation for Electoral Systems (IFES).