Ukraine drafts 2020 budget with 2.1% of GDP deficit

Ukraine’s Cabinet of Ministers approved the 2020 draft
budget on Sept. 15 and submitted it to parliament, the Interfax-Ukraine news
agency reported. General budget revenues are planned to increase 5.9% yoy to
UAH 1,079 bln, while budget outlays are set to increase 5.2% yoy to 1,170 bln.
The budget deficit is targeted at 2.09% of GDP, real GDP growth at 3.3% yoy and
the average exchange rate at UAH 28.20/USD.

The government aims to reduce the state debt to 46.7%
of GDP in 2020. State borrowing is planned at UAH 380 bln. State debt
repayments and servicing will amount to UAH 438.1 bln and UAH 145.2 bln,
respectively. Privatization receipts are expected at UAH 5 bln.

Starting Jan. 1. 2020, the minimal wage should amount
to UAH 4,273 (up 14.8% from the current level).

Highlighting the budget’s biggest changes, PM Oleksiy
Honcharuk told reporters that his government “has changed the approach to
state support for agriculture.” In particular, the 2020 budget cancels
subsidies to big agricultural producers in favor of support for small farmers,
he pointed out. It also introduces the compensation of interest rate payments
on banking loan for agricultural producers.

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 sounds reasonable
and it should satisfy the IMF, which is currently discussing a new loan program
with the government.

The budget is likely to undergo significant changes
before being submitted to parliament for its second reading by Nov. 2. The
current version is being based on macroeconomic indicators that were developed
by the previous government in the spring. In particular, the projected 2020 GDP
growth rate of 3.3% yoy doesn’t correspond to the ambitious plans of the new
government for far greater acceleration of economic growth.

It looks like PM Honcharuk will engage in promoting
the dramatic changes to the budget, trying to demonstrate that the new
political leaders are ready to implement their promises. Meanwhile, Finance
Minister Oksana Markarova is likely to take the conservative stance, which will
be easier to “sell” to the IMF and other Western financial partners.

Indeed, there is not much time for estimating the
impact of the new government’s initiatives on economic growth. Importantly,
some of these initiatives (like customs reforms, new regulations for
entrepreneurs, systemically fighting corruption) might have a negative impact
on the economy in the short run, as they are likely to result in the disruption
of traditional liaisons in the economy. To reduce this effect, a system of
compensators should be developed.