Ukraine parliament approves 2014 budget spending cuts

Макроэкономика 28.03.2014 Ukraine’s parliament approved on March 27 revisions to the 2014 budget. Though the final version has yet to be published, the draft amendments plan a UAH 22.4 bln revenue cut from the 2014 budget (to UAH 372.9 bln) and UAH 25.5 bln spending cut (to UAH 436.8 bln). The reported figures imply for 2014 a 10.0% yoy increase in budget revenue (compared to 16.5% growth that had been planned by the prior government) and 8.3% yoy growth in budget spending (compared to 14.6% growth that had been planned). The deficit was accepted almost unchanged at UAH 68.6 bln (4.2% of projected GDP). As its recommendations, the Cabinet of Ministers proposed to increase the marginal debt level to UAH 664 bln (43.6% of projected GDP), reduce state guarantees (to UAH 25 bln from UAH 50 bln), freeze minimum wages and the minimum subsistence level, dismiss 10% of state employees, reintroduce charges on exchange rate operations and issue VAT bonds. Alexander Paraschiy: Approving the revised 2014 budget was the first step on the way to implementing IMF requirements. Though the outlined revenue targets still look somewhat ambitious in light of the projected contraction in the real economy (-3% GDP in 2014), the potential revenue shortfall (nearly UAH 8.0 bln) looks manageable, especially in light of the approved anti-crisis tax hike and declared intention to tighten fiscal discipline. A backlash could occur as a result of the state layoffs and cuts in social spending. However, such steps are unavoidable in gaining IMF support.