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"The weak receipts at recent domestic bond auctions point to the waning ability of the domestic market to generate debt resources for the Finance Ministry," she added. "Meanwhile, we believe Ukraine will not gain access to affordable resources on the global markets until it secures the International Monetary Fund (IMF)'s loan tranche."
Ukraine's Cabinet of Ministers has approved the 2019 draft budget that is compliant with the demands of the country’s main donor, the International Monetary Fund (IMF) , and submitted it to parliament on September 14, Interfax-Ukraine reports. The parameters of the budget are generally upbeat and show growth and better revenue collection.
Budget revenues are expected to increase 12% to UAH1.3 trillion next year.
The budget deficit is targeted at 2.3% of GDP , real GDP growth at 3.0% y/y and annual inflation at 7.4%.
The budget deficit target has been a point of concern as next year is an election year and President Petro Poroshenko is trailing in the polls. The government is expected to increase spending and has already promised to hike the minimum wage to UAH4,200 ($149) in a crowd-pleasing move for the second time. The government increased minimum wages in 2016, although balked at increasing them again in 2017, which resulted in inflationary pressures.
The government aims to reduce the state debt to 52.2% of GDP and to 49.0% in 2020. External borrowing is expected at UAH122.7bn, including Eurobond placements, €0.5bn in macro-financial aid from the EU and $50mn from the World Bank for a social welfare modernization project. The issue of local UAH- and FCY denominated local bonds should bring UAH202bn in domestic borrowing. Privatization receipts are expected at UAH17bn.
In addition, a special budget fund will include expected borrowing of UAH21.2bn that should be attracted from foreign banks and IFIs for financing economic development projects.
“Only the major budget parameters are being presented at the moment, while the full package is not available to the public. The expected budget deficit of 2.3% should satisfy the IMF, which is currently finalizing its talks with Ukraine’s government on disbursing up to $2bn to Ukraine in its latest loan tranche,” Evgeniya Akhtyrko of Concorde Capital said in a note.
“Among the available details, we view government plans to receive UAH17bn in privatization receipts next year as too optimistic. Recall, Ukraine’s privatization receipts were only UAH49.9mn in 7M18, while the 2018 budget plan envisages UAH21.3bn. Presidential and parliamentary elections are scheduled for 2019, during, which it will be hard to fulfil a full-scale privatization program,” Akhtyrko adds.
“As we've reported, the budget draft is based on the consumer inflation forecast of 7.4%, which substantially exceeds the central bank’s target of 5.8% for 2019. Now we see the government also is more optimistic on Ukraine’s GDP growth next year (3.0% growth in the Cabinet forecast vs. 2.5% in the NBU’s latest projection).”
Ukraine's state budget revenue rose 15.1% year-on-year to UAH528bn ($18.5bn) in January-August , which is 3% below plan, the State Treasury provisionally reported on September 3.
33 UKRAINE Country Report October 2018 www.intellinews.com