Budget cash deficit to stay within 5.5% of GDP in 2010, in line with IMF agreements

Yesterday the Finance Ministry acknowledged that the state budget deficit reached UAH 56.6 bln (USD 7.1 bln) for 10M10, 4.6% above the plan for full-year 2010, according to Interfax.  Mykyta Mykhaylychenko: Importantly though, this number includes UAH 16.4 bln of expenses for VAT reimbursement securitization through a UAH sovereign bond issuance back in August. However, this is a cash deficit (i.e. excluding this UAH 16.4 bln in “outlays”), which the Ukrainian government committed to keep within 5.5% of GDP in 2010 to secure IMF funding as scheduled by the new SBA (on top of that, the government is allowed to provide up to 1% of GDP, or UAH 10.6 bln, to Naftogaz in 2010). Accordingly, the cash deficit equaled UAH 40.1 bln (USD 5 bln, or 3.8% of GDP 2010F) for 10M10. We believe that the government will be able to keep the cash deficit within 5.5% of GDP, or about UAH 58 bln (USD 7.3 bln), for full-year 2010 and fiscal deficit dynamics for 2010 should not going interfere with disbursement of the next USD 1.5 bln IMF tranche by end-2010. The government now has about UAH 35-45 bln (USD 4.4-5.7 bln) of cash in its accounts and still expects to receive another USD 1 bln (UAH 8 bln) from the next IMF tranche directly into the budget. Consequently, the government should have sufficient resources to finance the budget deficit through year-end and to repay approximately USD 420 mln of sovereign yen Eurobonds on December 19th.