Ukraine central budget deficit reaches 4.0% of GDP in 2014

Ukraine’s central budget deficit reached UAH 60.8 bln (net of VAT bonds) in 2014, which is 4.0% of GDP, while its general budget deficit was reported at UAH 72.1 bln (4.7% of GDP). The reported deficits are below the initially targeted UAH 63.8 bln (4.2% of GDP) for the state budget and UAH 88.5 bln (5.8% of GDP) for the general budget.

At the same time, Ukraine’s Finance Ministry undertook substantial quasi-fiscal outlays in 2014 like UAH 11.1 bln in compensation for low heating rates in local budgets, UAH 10.1 bln for the Deposits Guarantee Fund, UAH 16.6 bln in support for state-owned banks and a UAH 96.6 bln subsidy to Naftogaz. In 2013, the central budget deficit was reported at UAH 64.7 bln (4.4% of GDP) while the general budget deficit at UAH 63.6 bln (4.4% of GDP).

Alexander Paraschiy: As we expected, the authorities did not dare break the deficit targets outlined by the IMF (5.8% of GDP of general budget deficit). And as usual, MinFin just postponed part of the targeted outlays by running extra arrears. In particular, the authorities underfinanced budgetary needs in 2014 by UAH 32 bln in trying to comply with the requirements.

In fact, such moves were a good signal in the context of future IMF cooperation in that state officials placed the requests of the IMF above their need to appease the short-term appetites of the public. If they stay on this course in revising the 2015 budget, they can avoid default and prevent further hryvnia decline this year.