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NAKOs Comment on the Adopted Budget – 2019

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On November 23, 2018, Ukraine's Parliament passed the Law on State Budget-2019. In this regard, the Independent Anti-Corruption Committee prepared the statement.

As for the MoD budgeting: Budget-2019 stipulated more than UAH 102, 4 bln for the Ministry of Defence: it's 18 per cent more than in 2018. Most increase is due to the increase of expenses of the Armed Forces fo Ukraine, in 2019 they will reach more than UAH 81, 6 bln which is 36, 5 per cent more compared with the current year. Expenses to procure the military equipment remained practically unchanged: almost UAH 17 bln are planned for 2019 (the increase is only by 3, 6 per cent which is less than the inflation level). Defence housing expenses for 47 000 servicemen and women have increased only by 2 per cent and now make UAH 0, 83 bln. The expenses for ammunitions exposal have increased considerably, almost three-fold: from UAH 0. 53 bln to 1, 53 bln.

Thus, next year servicemen and women can expect pay increase but not serious rearmament or increased defence housing. It's clear that although the MoD budget has increased, these funds are not sufficient enough to address the current challenges. Thus, the effieciency of the costs use and preventing corruption should be the priority. NAKO points out that the the problem of defence procurement overclassification throught the State Defence Order hasnot been addressed. Currently, more than 90 per cent of the State Defence Order is procured through the closed procedure which doesn't allow tracking the efficiency of their use and increases corruption risks.

As for the defence-industrial sector: In 2019 more than UAH 2, 4 bln will be used to finance state special-purpopse programms aimed at reforming ang developing the defence-industrial sector, whereas more than 3 bln was stipulated for this in 2018. Moreover, UAH 2, 8 bln will go from a special fund to restock Ukroboronprom's registered capital. It's noteworthy to mention that it could be quite a risky step, as the UoP state-owned defence enterprise has not undergone corporatization, and it's organizational structure doesn't correspond to OECD standards of managing state-owned enterprises.

To increase the efficiency of budget spending, NAKO recommends to carry out the independent financial audit of Ukroboronprom and to creqte the Supervisory Board whose majority will include independent members elected by the governmental nomination committee. This will require changes to the Law of Ukraine "On the Specific Character of Managing the State Property Objects in the Defense-Industrial Sector".