Ukraine Cabinet approves 2015 revised budget draft

Ukraine’s Cabinet of Ministers approved on Feb. 14 a revised 2015 draft budget, according its web site. The updated budget is based on a more pessimistic macro-forecast of 26% inflation compared to 13.1% projected previously. At the same time, the authorities anticipate strengthening of the national currency to UAH 21/USD (on average per year) from UAH 26/USD currently, according to Prime Minister Arseniy Yatsenyuk.



The new spending plan also outlines a more ambitious revenue target of UAH 498 bln, which is UAH 22 bln more than the initially approved budget. At the same time, the Cabinet left the state budget deficit unchanged (UAH 63.7 bln, or 3.7% of GDP), disregarding Finance Minister Natalie Jaresko’s claim on Feb 12 of 4.6% of GDP being the new target.



Alexander Paraschiy: The approved draft budget with an even more ambitious revenue target is a very bad signal for hryvnia stability. The authorities now anticipate state collections will grow 37%, UAH 134.4 bln, which is overly optimistic given that central budget revenue increased only 7.3% (UAH 24.4 bln) last year. Not even the most ambitious plan of boosting taxes and fighting tax evasion would produce the needed upsurge. Only heavy hryvnia printing can provide the budget with this needed “revenue,” which means that further decline in the hryvnia can hardly be avoided.



There is some hope in the potential IMF agreement. But a USD 17.5 bln loan during four years isn’t a significant sum, especially with such support usually delayed due to standard problems with reforms implementation. Additional IFI support (funds from the EU, U.S., World Bank etc.) might help with “neutralizing” excessive hryvnia printing; however, we know too little about the design of such programs to tell for sure if they will be enough to defend the hryvnia in 2015.



Factoring in the conflicting numbers that have been released so far about the IMF deal and revised spending, we anticipate aggravated economic problems, with the hryvnia very likely sinking deeper already in the next few months.

Источник: Конкорд Капитал