Ukraine state deficit financing underperforms by UAH 140 mln in 11M20

Income of the general fund of the state budget
exceeded its 11M20 plan by 0.4% to reach UAH 805.9 bln, the Finance Ministry
reported on Dec. 1. Meanwhile, expenditures of the general fund underperformed
by 9.7% to reach UAH 940.6 bln in 11M20. The deficit of the general fund
reached UAH 130.7 bln in 11M20, vs. the plan of UAH 236.9 bln. Such
underperformance was the result of severe underfinancing of the deficit as
MinFin raised just UAH 98.1 bln in net debt in 11M20, or UAH 140.1 bln short of
plan.

The 2020 state budget assumes total income of UAH 976
bln (including income of the general fund of UAH 855 bln), expenditures of UAH
1,266 bln (including UAH 1,135 bln of the general fund) and a deficit of UAH
291 bln.

Alexander Paraschiy: Out of UAH
101 bln of planned budget expenditures that have not been spent in 11M20, some
portion is likely to not be spent at all due to a lack of necessity (as the
budget plan, adopted in a rush amid the beginning of the corona crisis in
mid-March, foresaw some excessive spending). At the same time, the root
of  a significant part of the underperformance of state expenditures is
the inability of MinFin to secure respective debt financing of the deficit.

We estimate that in December alone, MinFin will have
to attract net financing of at least UAH 100 bln (or about USD 4 bln) to
finance all the necessary budget expenditures for 2020. Such an amount is
impossible to borrow domestically, as the results of local bond tenders are
showing. Therefore, the only way to finance the deficit is to secure external
financing. As money from the IMF (the equivalent of USD 2 bln planned for
September-December) is not yet available, as well as money from the EU (the
equivalent of USD 1.45 bln) and World Bank (about USD 0.35 bln), the only
viable way for Ukraine to secure financing is to place international bonds. We
expect Ukraine will try to do that in the nearest two weeks.