Free public transport in Kyiv: economist points to risks due to budget deficit

Volodymyr Zelensky tasked the government with developing a free fare program for ground public transport in Kyiv, but implementing this idea faces serious challenges due to colossal deficits in state and local budgets.

The initiative to provide free travel for Kyiv residents on ground communal transport seems appealing to citizens, but it carries substantial financial risks for the state and the capital in wartime conditions.

In an on-air conversation on 24 Channel, economic expert Oleh Ustenko discussed the president's instruction to develop the relevant program and create a reserve of buses.

Why does free travel create budget risks?

The economist stressed that under normal state of public finances, any social steps to cheapen services have a positive effect, but today the country faces a massive shortage of funds.

From an economic point of view, when the state finances are normal, of course, anything you can give people at a lower price, where perhaps the state plays a role, will have a positive impact. But that is when there isn’t a complex state budget situation. We have a colossal budget deficit.

– the expert stated.

He reminded that of the planned external financing this year, 52 billion dollars, Ukraine received only 26 billion dollars in a year and a half. Local budgets are also in a precarious situation and cannot independently cover additional expenses.

The question arises: how much does this cost? Everyone understands that local budgets are also not going through the best times. If additional expenses are imposed on them, those costs must be covered because they are also in deficit. Where could the expenses come from? From the central budget. The central budget is deficit.

– the speaker noted.

What is happening with expenditures and economic forecasts?

According to the guest, at present no one is lending Ukraine more money for the rest of the year, and expected receipts from partners may amount to only 10 – 15 billion dollars instead of the remaining sum. Because of this, the state is forced to reduce capital investments, except for the security and defense sector.

In addition, the National Bank of Ukraine worsened its projections for the economy, changing its growth expectations to a decline.

According to the forecast that the National Bank of Ukraine had already set two weeks ago, we will show a decline of 0,4% this year. The state budget had been planned for growth of 2,5% for this year.

– the expert emphasized, adding that the inflation forecast has risen from less than 6% to 12%.

The speaker urged abandoning illusions and focusing on the worst-case scenarios in wartime economics, as the enemy continues to strike Ukraine’s economic system.

Will international aid be able to cover the deficit?

Commenting on long-term support from partners, the economist noted that counting on full satisfaction of an additional request for 70 billion euros is difficult, particularly due to elections and internal financial problems in EU countries.

At the same time, he drew attention to the need to combat domestic criminal schemes and the shadow economy, whose level, according to unofficial estimates, may exceed 30%.

30 percent of the economy is in the shadows. We are talking about a figure of 60 billion dollars, at least per year. 60 billion. 60 billion dollars are produced in the shadows.

– the analyst summed up, noting that there are hidden substantial resources there that could support the state’s financial system.

What preceded?

8 In November, Volodymyr Zelensky instructed the Cabinet to develop a program of free travel in Kyiv’s ground transport and to create a reserve of buses against subway and bridge disruptions across the Dnieper. The next day, Kyiv mayor Vitali Klitschko emphasized that additional routes critically lack drivers due to booking restrictions, and the state had already owed the city more than 8 billion hryvnias in reimbursements for transport of benefits recipients.