Page 39 - UKRRptOct20

Ukraine is currently convening negotiations with the IMF to “somehow decrease” the planned 2021 budget deficit​, the cabinet website said on September 25, citing PM Denys Shmyhal.
The current plan is for a UAH270bn deficit in 2021 (6.0% of GDP) after a planned UAH298bn deficit in 2020 (7.5% of GDP). The latest memorandum with the IMF, signed in June, stipulates that Ukraine’s budget deficit will be 5.3% of GDP in 2021, which is UAH239bn, based on the government’s latest GDP forecast.
The initiative to cut the planned budget deficit definitely comes from the IMF, not Ukraine’s government. This means the IMF is not willing to tolerate that high Ukraine’s budget gap for the next year, which in fact could become even higher than the actual deficit for 2020.
This confirms analysts’ expectation that the IMF is unlikely to conduct the first review of its program with Ukraine and provide the second tranche under the program until Ukraine shows and adopts an affordable budget for the next year. That's even though the budget’s adoption is not an explicit precondition for the tranche.
Recall, the IMF was planning to provide the second tranche under its SBA program with Ukraine in September (about $700mn). Also, the E.U. is awaiting a positive signal from the IMF to provide its macro-financial assistance tranches for Ukraine in the amount of €1,200mn.
Interestingly, on the weekend, some MPs registered a draft law to increase the 2020 budget deficit by UAH19.6bn to UAH318bn (8.0% of GDP) in order to finance the capability of the state-controlled electricity market operator to pay its bills to renewable electricity producers. While such bill have a low chance to be approved, it illustrates the general mood of Ukraine’s lawmakers, who are more interested in increasing rather than reducing the budget deficit.
Moreover, it illustrates a risk of the re-emergence of quasi-fiscal deficits in Ukraine caused by inefficiencies on regulated markets, a phenomenon not seen since 2017, after the reform of Naftogaz took effect.
The National Bank of Ukraine (NBU) expects an actual budget deficit in 2020 at the level of 6-6.5% of GDP instead of the 7.5% foreseen in the forecast​, Deputy Governor of the NBU Dmytro Sologub has said. "This year's budget deficit is set at 7.5% of GDP. This is absolutely correct from the countercyclical point of view. But, apparently, the actual deficit will be lower... We estimate that the budget deficit will be around 6 -6.5% of GDP," he said in an interview with Interfax-Ukraine. According to him, the budget deficit fell below the forecast due to the strong underfunding of existing expenses. "Catching up on them in recent months will not be easy given the funding opportunities," he said.
6.1.1 ​Budget dynamics - results
Ukraine's state budget revenue rose 3.3% y/y to UAH765bn in 9M20,
which is 1.5% below plan, the State Treasury provisionally reported on October 1. Net tax revenue jumped 17.0% y/y to UAH387bn (7.3% above plan) amid 9.6% y/y growth in gross tax revenue and a 11.2% y/y fall in VAT
39​ UKRAINE Country Report​ October 2020 ​ ​www.intellinews.com