COVID-19 Fund: How the Coronavirus Money Was Used

From idea to creation

In March 2020, the government began looking for mechanisms to finance measures to fight the corona crisis and proposed to create a so-called “Stabilization Fund” within the general fund of the state budget. A similar tool had already been created during the 2009 crisis. However, then its efficiency was low, and the actual costs were only 48% of the planned amount.

Initially, the stabilization fund was planned to amount to UAH 124 billion, later it was proposed to reduce expenditures to UAH 113.9 billion (10% of general budget expenditures at that time), which would increase the general budget deficit to UAH 305.8 billion.

During the discussion of this idea, the appetites of the Ministry of Finance for the size of the stabilization fund were reduced almost by half – to UAH 64.7 billion. And the number of directions of funds uses was significantly narrowed and focused on the costs necessary to combat the pandemic, namely:

1. prevention of the emergence and spread of the virus;
2. bonuses to the salaries of medical workers;
3. assistance to citizens, in particular to the elderly;
4. assistance to the families of health workers who died of coronavirus during the eradication of such a disease;
5. pension fund transfers;
6. financial assistance to the Social Insurance Funds and compulsory state social insurance in case of unemployment;
7. renewal of the reserve fund of the state budget;
8. restoration of state budget expenditures (including transfers to local budgets).

Accordingly, the fund itself was renamed: from the Stabilization one to the Fund to Fight COVID-19.

The Fund was created as a single, undistributed (i.e. without a clearly defined direction) item of state budget expenditures, from which funds could be directed to the aforementioned areas by decisions of the Cabinet of Ministers, agreed with the Verkhovna Rada Budget Committee.

Thus, during the use of the Fund’s money, the amount of funds under the corresponding budget program (3511380) in the Treasury’s reporting decreased, and the amount of funds under the programs to which the funds were directed, increased. According to the new standards of the 2020 Budget Law, as part of the distribution of funds from the COVID Fund, the government was given the right to create new budget programs without amending the Budget Law (which is usually prohibited).

To form the COVID Fund, funding for a number of budget programs has been reduced. Among them are benefits and subsidies for fuel (by UAH 8.2 billion), the State Fund for Regional Development (by UAH 2.6 billion), a subvention for the development of Amalgamated Territorial Communities (UAH 2.1 billion), a subvention for “Spromozhna Shkola” (UAH 1 billion) and others.

The parliament later allowed the government to use part of the COVID Fund to reimburse the funding of these items. In particular, as of December 23, UAH 475.8 million was allocated from the COVID Fund for the resumption of expenditures in the field of physical education and sports and UAH 48.4 million for the resumption of expenditures of the State Property Fund.

Money for hospitals or for roads?

The creation of the COVID Fund had three goals:

1. to provide the medical system with everything necessary to counteract the spread of coronavirus infection (the Ministry of Health is mainly responsible for this);
2. to support the population during the pandemic (responsibility of MEDT and the Ministry of Social Affairs);
3. to finance additional payments to various groups of public sector employees (mainly doctors and law enforcement officers) related to the fight against COVID.

Expenditures for the medical sector proved to be the weakest point of the COVID Fund. During its existence, the Government has allocated UAH 21.8 billion from it to the Ministry of Health. But as of December 23, cash expenditures for medical needs amounted to slightly more than half of the allocated funds (55%) – UAH 12 billion.

The low level of requests for funding and the long time of their processing have become the main political trap of the COVID Fund for the government. As of June 1 (i.e. one and a half months after the creation of the fund), the Government has allocated only UAH 13.02 billion from it, of which only UAH 3.09 – for medicine. In fact, according to the Treasury, UAH 160 million was used at that time, of which there were no medical expenses.

As of June 15, i.e. two months after the establishment of the COVID Fund, the Government managed to decide on the distribution of only UAH 18.7 billion out of the UAH 64.7 billion provided in the fund. In fact, UAH 1.8 billion was actually used at that time.

Given this inability to quickly use the money for the Fund’s specialized areas, on June 18 the Verkhovna Rada adopted amendments to the Law on the State Budget and added road construction to the possible areas of use of the coronavirus fund. And already on July 1, the Government decided to allocate more than half of the fund’s resources to it – UAH 35 billion.

As of December 23, the actual costs of road construction amounted to UAH 24 billion – 45% of the actual costs of the fund.

Ukraine was not the only country where government used infrastructure projects to stimulate aggregate demand during the corona crisis. For example, Australia, Kazakhstan and Israel have also invested in infrastructure.

But first, the question arises as to why the money was used to build roads and not on medical infrastructure (for example, the modernization of hospitals, the purchase of modern equipment – not only for oxygen supply). The government did not explain this decision to the public, and therefore a large number of citizens perceived it as unfair.

Secondly, it is not clear why the funds were directed to roads and not to the reimbursement of those programs that were reduced for the formation of the COVID Fund (in particular, education subventions, science funding, regional development projects through the Regional Development Fund, etc.).

Third, the further development of events showed that this decision was premature, because in autumn it turned out that the Government was not ready for the second wave of the corona crisis.

Therefore, in October, part of the funds had to be withdrawn from road construction and given to the needs of medical and social systems to combat the disease and its socio-economic consequences. The first decision on the redistribution of funds from the roads was made on October 28. In general, in autumn the Government redistributed UAH 3.5 billion from roads to other purposes.

And at the end of the year, new payments to entrepreneurs were added to the COVID Fund’s costs due to the expected increase in quarantine measures. On December 9, the Government allocated UAH 8.3 billion to insured persons who may lose income due to restrictive measures and approved the decree on assistance to business entities for the period of quarantine measures in the amount of UAH 1.8 billion.

What went wrong?

What went wrong, and why were the Ministry of Health and other ministries unable to use the funds allocated and provided to them in time?

The slow pace of funds application was expected given the length of procedures for the use of budget funds (we wrote about it here).

However, even under these conditions, some ministries were able to use the fund faster and more efficiently than others.

For example, at the end of April — that is, two weeks after the creation of the COVID Fund — the first money for social support of the population was allocated from it. Within a month, the first passport of the budget program was approved — the payment of benefits to children of entrepreneurs in the first and second groups of the simplified taxation system (according to the Budget Code, 45 days are given for approval of budget programs passports).

The money was sent through two main spending units — the Ministry of Social Policy and the Ministry of Economy. In particular, the Ministry of Social Policy provided assistance to private entrepreneurs’ children of groups 1 and 2 and assistance from the social insurance fund (including for the payment of sick leave). The Ministry of Economy is responsible for allocating additional funding to the unemployment insurance fund (Table 1).

In general, UAH 14.6 billion was allocated from the fund for the needs of public support in the period of fund’s operation. Cash expenditures (actually spent funds) as of December 23 amounted to UAH 12.5 billion (86%).

COVID funds were directed to the needs of the medical industry via 9 budget programs (Table 2).

But during the first three months of the COVID Fund’s operation (April-June), the Government made only two decisions (with a total value of UAH 1.1 billion) to direct the fund’s resources to medical needs.

But on average, two more months passed from the time of the Government’s decision to allocate funds to the approval of the passports of the Ministry of Health’s budget programs.

Thus, the Ministry of Health used the funds allocated for it with a significant delay. A typical example is the purchase of mechanical ventilation machines. Although the funds were allocated in April, the order on the distribution of ventilators was signed by the Minister only on November 11.

Another example is that on March 29, the President promised to pay doctors for working with coronavirus patients. However, the decision to send allowances and surcharges to health workers (UAH 5.9 billion) was made only in July, and the budget program passport was approved at the end of September 2020. Therefore, until September, doctors had been receiving additional payments only from the local budgets.

Similarly, the decision to allocate funds for the purchase of equipment for the emergency rooms of hub hospitals (UAH 4.7 billion), for the preparation of which the Ministry of Health was responsible, was made by the government only in July.

In some areas, for example, the financing of medical services under the state guarantee program, as of December 23, the actual level of use of funds was zero.

Use of COVID Fund resources by the Ministry of Health as of December 23, UAH million

Exceptions to this “rule” are those measures funding of which has been transferred to local budgets. In this case, the money were coming to the local level automatically from the moment of the decision on funding and without the need to adopt passports of budget programs. Therefore, the level of their use is much higher. Thus, out of the planned UAH 3.3 billion in subventions as of December 23, UAH 3 billion (92.8%) were transferred to local budgets to combat COVID.

Conclusion

The Coronavirus Fund was a forced and, from the point of view of international experience, a justified step for the accumulation of funds and prompt response to the pandemic.

However, the administration of the fund was not very effective. Due to the slow allocation of funds for medicine, the fund’s resources were used for needs not related to the medical field.

And the temporary decline in the incidence of Covid-19 during the summer was not used to intensify preparations for the “second wave” of incidence, which began in the fall.

Therefore, it was urgent to allocate funds for the profile needs of the medical sector at the end of the year, which created additional pressure on the expenditure side of public finances in the most difficult period of the year for the Ministry of Finance (taking into account the liquidity crisis in November). 

This emphasizes once again the importance not only of high-quality expenditure planning, but also of high-quality use of the funds provided to fund managers. And it raises the question of the responsibility of those government officials and ministries who do not have time to do their job — especially in those areas that are critical to the well-being of the population during the crisis.