Ukraine drafts 2019 budget with 2.3% of GDP deficit

Ukraine’s Cabinet of Ministers approved the 2019 draft
budget on Sept. 14 and submitted it to parliament, the Interfax-Ukraine news
agency reported. General budget revenues are expected to increase 12% to UAH
1.3 trln. The budget deficit is targeted at 2.3% of GDP, real GDP growth at
3.0% yoy and annual inflation at 7.4%.

The government aims to reduce the state debt to 52.2%
of GDP and to 49.0% in 2020. External borrowing is expected at UAH 122.7 bln,
including Eurobond placements, EUR 0.5 bln in macrofinancial aid from the EU
and USD 50 mln from the World Bank for a social welfare modernization project.
The issue of local UAH- and FCY denominated local bonds should bring UAH 202
bln in domestic borrowing. Privatization receipts are expected at UAH 17 bln.

In addition, a special budget fund will include
expected borrowing of UAH 21.2 bln that should be attracted from foreign banks
and IFIs for financing economic development projects.

Evgeniya Akhtyrko: Only the
major budget parameters are being presented at the moment, while the full
package is not available to the public. The expected budget deficit of 2.3%
should satisfy the IMF, which is currently finalizing its talks with Ukraine’s
government on disbursing up to USD 2 bln to Ukraine in its latest loan tranche.

Among the available details, we view government plans
to receive UAH 17 bln in privatization receipts next year as too optimistic.
Recall, Ukraine’s privatization receipts were only UAH 49.9 mln in 7M18, while
the 2018 budget plan envisages UAH 21.3 bln. Presidential and parliamentary
elections are scheduled for 2019, during which it will be hard to fulfill a
full-scale privatization program.

As we’ve reported, the budget draft is based on the
consumer inflation forecast of 7.4%, which substantially exceeds the central bank’s target of 5.8% for
2019. Now we see the
government also is more optimistic on Ukraine’s GDP growth next year (3.0%
growth in the Cabinet forecast vs. 2.5% in the NBU’s latest projection).