Government and Pandemic: How Effective was Covid-19 Response Fund?

In the winter of 2020, the Covid-19 pandemic shook the globe, affecting Ukraine in the spring of the same year. The word ‘coronavirus’ became one of the most widely used. In order to respond to the global challenges that the Ukrainian society was facing, in April of 2020 the Ukrainian government created the Covid-19 Response Fund, an effective finance and management instrument, which, as they thought, was intended to promptly and efficiently allocate funds to urgent needs in combating the spread of the virus.

According to the Ministry of Finances, the Covid-19 Response Fund is a temporary budget program funds from which are allocated, first and foremost, to finance additional health-care and social expenditures connected with the Covid-10 pandemic, and which will be effective until it is required by the emergency situation but not longer than December 31, 2020.

Respectively, the Fund was primarily aimed at providing funds for the medical and social spheres which, quite expectedly, became the most vulnerable in the last year.

At the beginning of 2021, it became obvious that a greater part of the budget money from the Fund had been spent beyond its designation. For this reason, it is important to figure out what went wrong. It is also important to understand how the government can avoid making such mistakes in the future, should such emergency funds are created again.

Initially, the Covid-19 Response Fund included 64.67 billion hryvnas, which were allocated through sequester and changes in the state budget, in particular due to reduction in culture expenditures and cuts in the budgets of the Ministry of Infrastructure, the Ministry of Economy as well as growth of deficit of the state budget.

Later, 1.3 billion hryvnas were withdrawn from the Fund to hold local elections as well as elections of people’s deputies in several constituencies.

In July, the Cabinet of Ministers increased the Fund by 2.6 billion hryvnas at the cost of the Service of National Debt budget program. In December, the Fund was increased again by 6.1 billion hryvnas due to reallocation of expenditures of other budget programs. Besides, in November 8.9 billion hryvnas were added to the Fund from the special fund of the state budget. It means that the final amount of the Covid-19 Response Fund was made up of 80.9 billion hryvnas.

Of great importance is the fact that, as of the beginning of the year, a part of funds in the Covid-19 Response Fund, in particular 2.5 billion hryvnas, had not been allocated. With this amount effectively used, the fund could have been allotted to purchase additional means of individual protection, for example, for schools where teachers and children were concentrated. As a matter of fact, the Ministry of Education asked for 3 billion hryvnas for the aforementioned needs. However, the government did not accommodate the request.

Who and how much was budgeted

Unlike using funds according to their designation, the Fund was allocated rather promptly.

One of the most striking news about the Covid-19 Response Fund was allocation of 35 billion hryvnas for road construction in 2020. At that time, that amount constituted actually almost a half of the Fund. Later, the government reallocated a part of those funds, in particular to health care, having left 26.2 billion hryvnas for Ukravtodor road repair company, out of which the latter used 25.6 billion hryvnas (98.3%). By the end of the year, 450 million hryvnas had not been used neither for roads, not any other needs.

Another high-profile case is about the allocating of 2.7 billion hryvnas, followed with 1.9 billion, to the Ministry of Internal Affairs for fringe benefits of policemen, National Guard and central office officers. The total of 4.6 billion hryvnas were allotted to provide fringe benefits to policemen, servicemen of the National Guard and State Border Service of Ukraine.

Also, the Ministry of Internal Affairs was allocated 193.3 million hryvnas for supplementary payments to medical personnel of health care institutions of the Ministry of Internal Affairs of Ukraine, with 28 million allocated to equip a mobile hospital of the State Emergency Service. It is only 6 million hryvnas out of 4.7 billion which were not spent by the ministry, which turned out to be the most efficient in using budget funds.

The analysis of efficiency and effectiveness of the spending of funds by different ministries even gave rise to a joke that it would be better to allocate funds to the Ministry of Internal Affairs rather that the Ministry of Health Care. In such a case the money would have been spent on time.

The Ministry of Economy was allocated 10.7 billion hryvnas from the Covid-19 Response Fund with the view to providing assistance to the Social Insurance Fund in case of unemployment out of which 8.8 billion or 82.1% of the total amount had been spent by the end of the year.

The Ministry of Social Policy was allocated 11.8 billion hryvnas. In particular, 1.4 billion hryvnas were allotted to provide assistance to children of individual entrepreneurs and financial assistance to the Social Insurance Fund, including 2.1 billion hryvnas for sick leaves.

Also, the Ministry of Social Policy was allocated the total amount of 8.3 billion hryvnas to provide welfare assistance (the so called 8 000 from Zelenskyi) to those who may lose income, should their activity be prohibited. As far as this amount, the Ministry of Social Policy spent only 3.6 billion hryvnas (43%), with 4.7 billion, respectively, having remained unspent. If the policy of the government in respect of quarantine restrictions for small and medium-sized businesses had been weighted, the remaining balance could have been allocated in another important direction, for example, supplementary funding of local budgets to fight against Covid-19 or to buy individual protection gear for schools.

Overall, the Ministry of Social Policy managed to have spent 6.9 billion hryvnas, with 4.9 billion (42%) having remained unused.

1.4 billion (82.2%) hryvnas were used out of 1.7 billion hryvnas which were allocated to the Ministry for Communities and Territorial Development of Ukraine to renovate and reconstruct admission wards at base hospitals.

777.8 million were allocated to the Ministry of Culture. As a reminder, this was one of the ministries which had been stripped of the biggest amount of money in the state budget sequester. The Ministry of Culture managed to spend 680.5 million (87%).

409.6 million (86%) hryvnas were spent out of 475.8 million which had been allocated from the Covid-19 Response Fund to the Ministry of Youth and Sports to resume expenditures in the sphere of physical culture and sport.

The Ministry of Justice received 126.7 million hryvnas from the Covid-19 Response Fund. 103 million hryvnas were allotted to cover expenditures which were untypical for the Covid-19 Response Fund, namely repayment of the governmental debt to foreign companies. 22.6 million hryvnas were allotted to prevent Covid-19 from spreading at institutions of the State Criminal Executive Service of Ukraine plus 1.1 million to buy up individual protection gear and disinfection agents for educational institutions of the State Criminal Executive Service as well as equipment for distance learning. As of the end of the year, the Ministry of Justice had spent 123.8 million hryvnas (98%).

Less amounts of money were allocated to the Ministry of Education, Department of State Management of Affairs, and State Property Fund. The former two spent almost 100% of the allocated fund, and the State Property Fund used only 30% out of 48.4 million hryvnas for partial resumption of expenditures in the area of state property privatization.

As of the end of the year, cash transaction had been made from the Covid-19 Response Fund, which constituted 82.2% of the total amount of the Fund. As it has already been mentioned, 2.5 billion remained unallocated at the end of the year.

Who was not budgeted

While funds of the Covid-19 Response Fund were allocated, attention of the public was drawn not only to untypical expenditures for roads or police benefits, but also not less unexpected budget requests of public bodies.

In particular, it was in July of 2020 that the human rights commissioner asked for 14.5 million hryvnas for capital renovation of an administrative building of the secretariat and other needs, including 3.4 million hryvnas for the creating of a web site.

140,000 million hryvnas were requested from the Covid-19 Response Fund by the Ministry of Energy to resume expenditures for construction of the Novokostiantynivsk Uranium Mine in Kirovohrad region.

A million hryvnas was requested from the Covid-19 Fund by the Supreme Court to reimburse expenses for the buying up of masks, hygiene items, sanitizers and disinfection of premises.

It was at the end of the year when the State Judicial Administration of Ukraine asked for 83.7 million hryvnas from the Covid-19 Response Fund to provide its personnel with individual protection gear and the like items.

The government failed to meet not only the aforementioned budget request, but also fully relevant requests of the regions to combat the pandemic.

All the information about unsatisfied requests for financing from the Covid-19 Response Fund is available in the infographics.

Who was not budgeted

How effectively the Ministry of Health Care spent the funds

During the year many public activists and patient organizations drew attention of the government to the need to allocate more money from the Covid-19 Response Fund to medical avenues of combating the pandemic as it was one of the top-priority goals pursued in the creating of the Fund.

At the end of the year, the Ministry of Health Care of Ukraine was allocated 20.5 billion hryvnas from the general Fund and 1.4 billion hryvnas from the special fund to buy up vaccines.

100% of the funds or, in other words, 2.3 billion hryvnas were spent in just one area – Equipment for Admission Wards at Base Hospitals.

5.3 billion (95.8%) out of 5.5 billion was used to increase allowances and benefits of medical personnel.

97.3% out of 1,049 billion hryvnas was spent as a budget subvention to provide base medical institutions with X-ray units and ultrasound machines. 96.8% or 1,419 billion hryvnas out of 1,466 billion was spent as a budget subvention for local budgets to provide hospitals with oxygen.

As of the end of the year, 3.9 billion hryvnas out of 5.26 billion, which makes up 74.1%, had been spent in the direction Medical Services Within Government Guarantees of Medical Service. This case is the most illustrative in terms of how effectively the Ministry of Health Care spends the funds allocated to it. As a matter of fact, 1.4 billion hryvnas remained unused within this budget program, though the funds were allocated on November 25, giving the ministry enough time to arrange payments according to the target designation.

Another incident which draw attention of the public was the procurement of artificial lung ventilators domestic hospitals so fell short of. The Ministry of Health Care received the money in April.  However, 16 million out of 100 million allotted to buy resuscitators remained pending not in the least due to repeated attempts of the ministry to assume the function of holding tenders from its own Medical Procurements state enterprise.

The Ministry of Health Care failed to spend almost 2.7 billion hryvnas overall which constitutes 13% of the total amount of the allocated funds.

The Ministry of Health Care has not used 1.4 billion hryvnas intended to buy up vaccines from the special fund of the state budget either. These funds will be spent in the new year.

In the context of using the funds by the Ministry of Health Care of Ukraine, it is worth reviewing also how its spends money not only from the Covid-19 Response Fund, but from other budget programs, excluding expenditures of the National Health Service of Ukraine, national expenditures and loans.

According to the information about execution of the state budget, provided by the State Treasury Service of Ukraine in response to an enquiry of StateWatch, as of January 1, 2021, the Ministry of Health Care had spent 88% of the planned money from the general and special funds of the state budget (including the Covid-19 Response Fund), in particular 199.4 billion out of 225.5 budgeted funds. Respectively, 26 billion hryvnas, which made up around third part of the final amount of the Covid-19 Response Fund, remained unspent.

What is next?

Given the experience gained while allotting and spending funds from the Covid-19 Response Fund as well as chaotic budget requests, it is not advisable for the government to create such funds which do not have specific indicators by which effectiveness of spending budget money could be verified.

It is appropriate to develop a new budget program or expand the existing budget programs of the Ministry of Health Care, Ministry of Social Policy, Ministry of Development of Economy, Trade and Agriculture by setting a purpose and performance indictors the monitoring of which will make it possible to analyze whether the purpose has been achieved.

In 2021, the government has not made any provisions in the budget so far for such a fund, having recognized, in part, its ineffectiveness and problematic character. Instead, the money to fight against Covid-19 will be spent within the existing budget programs.

To ensure effectiveness and transparency of spending the funds, the Cabinet of Ministers of Ukraine has to report on cash transactions to combat the pandemic, following the example of the web site of the Ministry of Finance on which expenditures by specific budget programs are published. It is also worth adding performance of specific indicators per a certain time period to illustrate performance of budget programs indictors during a fiscal year.

Ministries and other budget holders must speed up internal bureaucratic procedures related to approval of procurements in terms of combating the pandemic to avoid cases like the buying of resuscitators.

In the context of spending funds to fight against Covid-19, budget holders can also report in details on expenditures to combat the pandemic on their web sites.

In order to ensure transparent use of the funds, the Accounting Chamber and State Audit Service must carry out audits of the use of the funds both nationally and regionally, and actively report on their results to the society.

This analytical article has been written by StateWatch with support from the International Renaissance Fund within the project Civil Control over Budget Expenditures from the Government Covid-19 Response Fund in Ukraine.