Parliament approves 2011 budget

Yesterday Ukraine’s parliament approved the 2010 state budget law. The draft implies a state budget deficit of UAH 38.8 bln (USD 4.9 bln) or 3% of 2011 GDP as projected by the government, down from 6% of GDP deficit in 2010E (incl. Naftogaz). The International Monetary Fund expects the government to keep its fiscal gap next year within 3.5% of GDP. The Finance Ministry plans to cover the deficit with UAH 10 bln from privatization, some UAH 11 bln from net domestic UAH borrowings and the rest (UAH 17 bln or USD 2.1 bln) to be financed through external borrowings. On top of that, the government will need to refinance UAH 62.3 bln (USD 7.8 bln) in debt maturing in 2011. Mykyta Mykhaylychenko: We expect the government might need to issue Eurobonds for some USD 2.5 bln in 2011 and prolong its USD 2 bln loan from Russian VTB (with final maturity in June 2012). The government is counting on increasing total consolidated budget revenues 13% y-o-y to UAH 360 bln (28.7% of 2011 GDP, projected by the government), including tax revenues by 27% y-o-y in 2011, which we deem too aggressive. We estimate the actual total fiscal deficit could reach as much as UAH 50-55 bln (4%-4.5% of GDP).