Page 38 - UKRRptOct20

Ukraine cabinet drafts 2021 budget with 6% of GDP deficit.​ Ukraine's Cabinet of Ministers approved the 2021 draft budget on September 14 and submitted it to parliament, the Interfax-Ukraine news agency reported.
The IMF thinks this is too much and is pressuring the government to cut the deficit to 5.3% GDP (see below).
The budget is based on the following assumptions: 4.6% GDP growth in 2021
7.3% inflation
1.07 trillion UAH ($38 billion) of state revenues
The biggest beneficiaries of the new budget will be the social protection programs (324 billion UAH or $11.5 billion); education (174 billion UAH or $6 billion); security and defense (267 billion UAH or $9.5 billion); healthcare (156 billion UAH or $5.5 billion) and infrastructure programs – (150 billion UAH or $5.3 billion). Another priority is the increase of the minimum wage, to 5,000 UAH ($182) from this month with a further increase to 6,000 UAH in January 2021.
General budget revenues are planned to increase 9.4% y/y to UAH1,071 bln, while budget outlays are set to increase 5.1% y/y to 1,350 bln. The budget deficit is targeted at 6% of GDP, real GDP growth at 4.6% y/y, consumer inflation at 7.3% YTD and the average exchange rate at UAH29.10/$.
The government aims to reduce the state debt to 64.6% of GDP in 2021. State borrowing is planned at UAH684.7 bln. In particular, the receipts from the placement of Eurobonds are expected at $3 bln, while IFI borrowing should amount to $1.5 bln. Privatization receipts are expected at UAH6 bln.
The minimum wage should amount to UAH6,000 starting January 1, 2021 and UAH6,500 starting September 1, 2021.
Commenting on the budget deficit, Finance Minister Serhiy Marchenko noted that “Ukraine cannot be the 'white crow' while most countries in the world enlarge their budget deficits."​ ​The major issue of the presented budget is its projected 6% of GDP budget deficit, which looks large for a year when the economy's growth is expected at 4.6% y/y at the same time the country is not likely to face extraordinary expenditures on anti-pandemic measures. Marchenko's remark that Ukraine should enlarge its budget deficit because most countries will do this in 2021 is not an effective argument. In fact, Ukraine's economy cannot afford the same luxury as developed economies as its recovery in 2016-2019 was not enough to cover the huge economic downfall of 2014-2015.
Apparently, the Zelenskiy administration will argue that the increased budget expenditures will stimulate economic recovery, as the outlays for government infrastructure projects are to be hiked significantly. However, the effectiveness of such budget expenditures are questionable given the high level of corruption usually related to budget-financed projects in Ukraine. Taking into account the recent negative developments that might result in the ​dismantling of the anti-corruption infrastructure in Ukraine​, budget spending oversight is not likely to improve.
38​ UKRAINE Country Report​ October 2020 ​ ​www.intellinews.com