Revised 2015 Ukraine budget approved with 4.1% of GDP deficit

The Finance Ministry of Ukraine revealed on Feb. 16 more details on the latest 2015 budget draft that was approved by the Cabinet on Feb. 14, as part of its revisions to the original budget approved on Dec. 29. The new draft increases the revenue target by UAH 22.1 bln to UAH 498 bln while boosting spending UAH 35.2 bln to UAH 563.1 bln. The central budget deficit (including loans) was targeted at UAH 76.3 bln (4.1% of GDP) compared to the original UAH 63.7 bln (3.7% of GDP).



The nominal GDP target was increased to UAH 1,850 bln from UAH 1,721 bln approved previously. The increase was caused mainly by a revised inflation rate (CPI projection increased to 26.0% from 13.1%). The Cabinet also worsened its real GDP growth forecast to -5.5% yoy from -4.3% yoy approved previously.



The main sources for the revenue increase are VAT collections (UAH 11.8 bln higher yoy), charges on hydrocarbon extraction (UAH 9.1 bln higher yoy), and an enterprise profit tax (UAH 2.5 bln higher yoy). At the same time, a plan of direct wires to the budget from the central bank’s profit was reduced by UAH 4.9 bln to UAH 60.5 bln.



Spending was increased primarily due to higher debt servicing costs (UAH 21.5 bln higher yoy) and boosted energy subsidies to households (UAH 12.5 bln higher yoy). At the same time, subsidies to the Pension Fund were reduced by UAH 3.9 bln to UAH 77.0 bln. Also, the Finance Ministry reported that the Naftogaz subsidy will be reduced to UAH 29.7 bln from UAH 31.5 bln.



Alexander Paraschiy: The authorities expect state collections growth of about 37% yoy (UAH 134.4 bln), at the nominal GDP growth rate of about 20% yoy. Needless to say, the target is extremely ambitious and has poor chances to be reached. If the IMF executive board gives the final approval for the loan – which should unlock funding also from the U.S., EU and other donors – the international lending will serve to cover some part of the ambitious spending plan this year.



At the same time, a major part of public spending will require substantial hryvnia printing, which poses extra risks for further hryvnia weakening. To make matters worse, external support used to be delayed due to delays in implementing reforms by Ukraine, which could repeat itself. All that leads us to conclude that the suggested draft budget is very risky for implementation and in and of itself a source of further national currency destabilization throughout the year.

Источник: Конкорд Капитал