Rada approves 2022 state budget with 3.5% of GDP deficit

Ukraine’s parliament voted on Dec. 2 to adopt the 2022
state budget with 268 votes in favor (226 votes needed). The bill was approved
by part of the pro-presidential People’s Servant faction (215 out of 243 MPs),
most MPs from Dovira and For the Future factions, some non-faction MPs, as well
as two votes from Yulia Tymoshenko’s Fatherland faction and one vote from Voice
faction. Meanwhile, the opposition European Solidarity faction and Opposition
Platform For Life provided no votes for the budget bill.

The tax changes assumed by bill #5600, which was
adopted on Nov. 30, were incorporated prior to the second reading. In
particular, the budget assumes that the amendments on the iron ore royalty
calculation mechanism will bring just UAH 240 mln revenue to the budget.
Meanwhile, the price rally for oil and gas should provide an additional UAH 23
bln of royalty payments from these resources.

The major changes from the first reading assumes an
additional UAH 25 bln for infrastructure payments. Also, the expenditures side
of the budget includes an additional UAH 2 bln on wage increase for medical
workers.

Evgeniya Akhtyrko: It looks
like the era of the “fight for the budget”, which included long hours of
reading and the adoption after midnight, is over. Now, the MPs representing
single-mandate districts have fewer possibilities to obtain additional budget
resources for their constituencies, and this resulted in a smaller field for
backroom deals prior to the budget adoption.

The approval of the IMF’s second tranche to Ukraine under the SBA for USD 700 mln prior to
the second reading of the budget implies that the major parameters of the
adopted bill were in line with the guidance of the international lender. The
budget deficit decline to 3.5% of GDP from a 5.5% of GDP last year is a good
development meaning that the government isn’t using the pandemic case as a
ground to maintain increased expenditures for another year.