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the Chairman of the Parliament's Financial Committee, Danylo Hetmantsev,
one option for closing the budget deficit is eliminating the shadow economy. However, this would only provide approximately ₴50-80B per year in the short term. Ukraine's shadow economy is estimated at ₴500B ($12.5B) per year, but fighting to legitimize this economic sector is a long process. The second option is redirecting a portion of the bank’s available liquidity to purchase Domestic State Loan Bonds (OVDP). Yet another solution is budget sequestration, but the government is loath to use it because of its desire to reduce expenses. "But billions, perhaps tens of billions, can be cut, and the Ministry of Defense needs hundreds of billions," Hetmantsev noted. Also, according to the parliamentarian, it is possible to convert some of the remaining funds in local budgets into military OVDP. There is currently a reserve of approximately ₴155B that could be utilized. However, this decision would not help with fiscal decentralization.
The Ukrainian parliament says that the government is preparing to raise taxes. Chairman of the Verkhovna Rada Committee on Finance Danylo Hetmantsev said that the Cabinet of Ministers is preparing proposals to raise certain taxes. This is because the Ministry of Defence needs an additional $5-10B in financing and it is difficult to restructure its external debt. However, the government has not submitted anything to the parliament, so it is not known what the new rates will be. At the same time, the parliamentarian emphasized that the Cabinet of Ministers will consider the consequences for the economy, though he noted that underfunding the army could turn out to be "much worse" and even "fatal." The main sources of budget revenues are personal income tax, military levy, value-added tax, and excise duties. There is also an income tax, but due to the complexity of its administration, it is unlikely to be changed. Hetmantsev also noted that in 2025, there is a risk of not receiving sufficient foreign aid. Ukraine needs more than $32B, of which $15B has not yet been confirmed. Another risk is military spending if the war continues throughout 2025.
6.1.1 Budget dynamics - results
Ukraine’s state budget revenues have been decreasing for four months in a row.In May 2024, the general fund of the state budget received ₴151.8B, which is less than in February, March, and April, the Ministry of Finance notes. According to the results from the five completed months of the year, the state budget’s general and special funds received ₴1.075T in taxes, fees, and other payments. At the same time, cash expenditures for this period amounted to ₴1.545T. Actual state borrowing to finance the general fund of the state budget for January-May amounts to ₴612B, of which ₴189.5B was obtained from the placement of OVDP. ₴422.5B (or about $10.8B) came from external sources. Since the beginning of the war, Ukraine’s largest donors of budget assistance have been the EU, Japan, Canada, and the IMF and collectively their contributions have reached $85.4B. It is also reported that service for the state’s debt for the January-May period in 2024 includes ₴201.7B against the principal (91.5% of the planned amount), and interest payments of ₴101.7B (91.6% of plan).
Ukrainian govt not discussing issue of raising taxes – PM The Ukrainian government is currently not discussing the issue of raising taxes, Prime Minister Denys Shmyhal said at the Hour of Government in the Verkhovna
72 UKRAINE Country Report July 2024 www.intellinews.com