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21 May, 2013 15:46   ▪  

Reuters: the roads in Ukraine fell hostage to the government's populism

The issue of price increases for households is highly politicized in Ukraine, writes Olzhas Auyezov, Reuters journalist.

“Most drivers blame the government for the fact that potholes and crumbling asphalt mean they either have to endure incessant jolts and regular damage by steering straight over them, or zig-zag around them, with perilous consequences. In fact, the government does spend on the roads. Like the heavily subsidised energy and utilities sectors, Ukraine's state-run road network drains billions of dollars a year. But most is swallowed up by corruption, mis-spending and short-term repairs, leaving the authorities with the choice of raising taxes to cover the soaring costs or cracking down. It is just one of several tough decisions the government needs to make to avoid a debt trap, but it is refusing to countenance for fear of losing popularity. State debt rose to $67.4 billion this March from $60.5 billion a year earlier,” Auyezov claims.

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“All the government efficiency issues manifest themselves in the road sector,” said Mark Magaletsky, senior banker in charge of Ukrainian infrastructure and energy at the European Bank for Reconstruction and Development.

“The prospect of raising taxes will only become more unpalatable with the approach of the next presidential election, due in early 2015, meaning the roads will continue to degrade.

The same is likely to happen to other areas of infrastructure such as energy and utilities where prices paid by households are heavily subsidised and removing subsidies is certain to lead to popular discontent,” Auyezov predicts.

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“Unfortunately, imbalances are present in many sectors in Ukraine,” the EBRD's Magaletsky said. “Everything related to price increases for households goes through with great difficulty and is highly politicised.”

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