Ukraine 2019 budget ready for approval

Ukraine’s parliamentary budget committee approved late
on Nov. 21 the revised 2019 state budget for the second reading, the Ukrinform
news agency said. Today, the bill should be on the Verkhovna Rada’s floor for
its second approval after it was submitted to committee by the Finance Ministry
on Nov. 20. Compared to a draft approved in first reading,
government increased state budget revenues 1.8% to UAH 1,019 bln, while
spending grew 1.6% to UAH 1,112 bln, according to documents on the Rada
website. Meanwhile, the budget deficit amount did not change from the first
draft, staying at UAH 90.0 bln, or 2.3% of expected GDP.

In comparison with the first draft, the government
boosted its planned revenue from the enterprise profit tax (2.8%), rent on
mineral extraction (20.0%), and import duties (3.4%). It also increased the
transfer from the central bank’s income to the budget by UAH 2.0 bln to UAH
47.6 bln.

On the expenditures side, the government budgeted UAH
20 bln for household subsidies, which should be paid to individuals in cash.
Subsequently, MinFin reduced its outlays for these subsidies which will be
transferred to local budgets in order to compensate subsidies at the local
level to reduce utility bills for low-income people, which now amount to UAH
35.1 bln (vs. UAH 71.0 bln in the 2018 budget).

Evgeniya Akhtyrko: There is a
good chance that the budget’s second reading will be passed by parliament today
or early tomorrow. If so, it will be the earliest adoption of the budget in
Ukraine’s history. As we wrote before, its early
adoption is critical in order to allow the IMF enough time to approve a new
stand-by program with Ukraine for USD 3.9 bln by the year end.

The government initiative to rearrange the financing
of household subsidies is challenging. So far, it hasn’t revealed a clear
mechanism for paying household subsidies in cash to individuals. Supposedly,
this should serve as an incentive for subsidy receivers to save the utilities
they consume. Nevertheless, the plunge in resources budgeted for subsidizing
utilities means that public servants should work hard on tightening the
criteria for subsidy eligibility and reduce abuse among subsidy recipients.
This will inevitably result in increased discontent among the public, which is
highly undesirable for the current establishment given the approaching
presidential and parliamentary elections in 2019.