Ukraine budget deficit reaches UAH 84 bln in 2019

Ukraine’s general budget in 2019 posted a deficit of UAH
84.3 bln amid revenue growth of 8.9% yoy and an expenditure increase of 9.6%
yoy, the State Treasury reported on Jan. 27. General revenues met 97.5% of the
annual fiscal plan, while expenditures were at 94.0%. The state budget deficit
amounted to UAH 78.0 bln in 2019 amid a deficit ceiling set at UAH 91.1 bln.

In December alone, general budget deficit enlarged to
UAH 77.4 bln from a UAH 6.2 bln deficit in November, the State Treasury
reported on Jan. 27. General budget revenue increased 14.9% yoy to UAH 126 bln,
after dropping 4.4% yoy in November. Budget expenditures rose 1.4% yoy to UAH
201 bln, slowing from 7.3% yoy growth in November.

Tax revenue swelled 16.9% yoy, speeding up from 3.1%
yoy growth in November. In particular, enterprise profit tax revenue surged
almost three times yoy after 18.9% yoy growth in November. Personal income tax
revenue accelerated to 17.1% yoy growth from a 13.3% yoy improvement in
November. VAT revenue advanced 22.6% yoy (vs. 12.3% yoy growth in November)
while VAT reimbursement declined 2.2% yoy (vs. a 17.0% yoy drop in November).

Non-tax revenue increased 11.2% yoy, after plummeting
50.2% yoy in November. In particular, income from ownership and
entrepreneurship jumped 51.0% yoy (vs. a 83.4% yoy plunge in November). This
increase was mostly secured by income and dividends transferred to the budget
by state enterprises.

Evgeniya Akhtyrko: The
government made a significant effort to improve the picture of budget revenues
in December. In particular, the state required Naftogaz to make advanced
payments in the form of dividends and other tax payments to
the budget of around UAH 13 bln. A significant jump in revenues drawn from the
enterprise profit tax implies others were also urged to pay in advance. Some
delays with VAT reimbursement to exporters could also have been a factor. These
immediate fixes, coupled with the cut of budget expenditures in
December, clearly show that the situation with budget
collections became a real problem at the year end for the neophyte government.

Such problems with budget collections are likely to
extend through this year, given a significant decline in industrial output and cooling inflation. If budget collections remain significantly weaker than expected, the
Cabinet will have to resort to a systemic and explicit cut in budget
expenditures, which is likely to cause discontent in society and destabilize
the government’s position.