Government approves 2013 budget draft

The Cabinet of Ministers approved of the 2013 state budget draft, which envisages revenue growth of 6.4% yoy to USD 48.8 bln (at the current exchange rate) and an increase in expenditures of 6.3% yoy to USD 53.6 bln. The deficit was set at USD 3.4 bln (vs. 3.1 bln targeted this year), but this excludes money to be directed to Naftogaz. The government also plans to extend state guarantees to borrowings amounting to USD 2 bln. The minimum wage is expected to increase 8.5% yoy to USD 140.

Alexander Paraschiy: With a budget deficit at just 1.7% of 2013E GDP, the plan looks conservative. The government is targeting just moderate growth in revenues and expenditures (about 6.4% yoy vs. a projected nominal GDP increase of 12.5%) for 2013, which is a positive. Yet, given that this year’s state budget revenue plan is likely to be underfulfilled by 2-4%, the implied revenue growth for 2013 is thus in the range of 8.5-10.5% and implies the tax burden on businesses is set to remain high. The draft budget looks tentative as it’s based on an overly optimistic macro scenario – real 2013 GDP growth is seen at 4.5% yoy and no major hryvnya depreciation is expected. This leads us to believe the document will be subject to revisions in 4Q12, shortly after the parliamentary election.