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Parliament approves 2012 budget

Parliament approves 2012 budget

23 December 2011

Yesterday Ukraine’s parliament approved the 2012 state budget, shortly after the Cabinet of Ministers submitted the document for a vote. The fiscal plan is based on an assumption of 3.9% GDP growth in 2012 and import gas price of USD 416/tcm. The document foresees central budget revenues growing 10% yoy to UAH 333 bln (USD 42 bln) while expenditures are to rise by a moderate 5% yoy to UAH 385 bln (USD 48 bln). The central budget deficit is planned at UAH 25 bln (excluding UAH 12 bln earmarked for Naftogaz’ capitalization) or 1.7% of 2012 GDP, according to our projections. Next year, the government plans to borrow net UAH 26 bln (USD 3.3 bln) on the domestic market and net UAH 6 bln (USD 0.8 bln) on the external market. The minimum wage is expected to increase 8.9% yoy next year. Svetlana Rekrut: Our first take on the approved document is positive – both budget revenue and expenditure growth rates are projected to lag nominal GDP growth, which we project at 16% yoy. With Naftogaz’ capitalization funds accounted for, the planned budget deficit comes to UAH 38 bln or 2.6% of 2012E GDP (based on our projections), broadly in line with IMF requests. We note, however, that the government might have underestimated Naftogaz’ financing need given that the document was drafted against the assumption of a 2012E import gas price of USD 416/bcm. Also we believe refinancing of both maturing external and domestic debt (USD 3.9 bln and USD 4.3 bln, respectively) is going to be a challenge next year given persisting jitters on global debt markets and weak liquidity in the domestic banking sector. Overall, the budget parameters are broadly in line with market expectations and the document should have a minor impact on quotations of sovereign debt.

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