Rada approves 2021 state budget with a 5.5% of GDP deficit

Ukraine’s parliament voted on Dec. 15 to adopt the
2021 state budget with 289 votes in favor (226 votes needed). The bill was
approved by part of the pro-presidential People’s Servant faction (225 out of
246 MPs), most deputies from Dovira and For the Future parliamentary groups as
well as half of Yulia Tymoshenko’s Fatherland faction and some non-faction MPs.
Meanwhile, the pro-Western European Solidarity and Voice factions, as well as
the pro-Putin faction Opposition Platform For Life, provided no votes for the
budget bill.

The 2021 budget assumes a planned budget
revenue of UAH 1,092 bln (vs. UAH 1,071 bln in the first draft) and
expenditures of  UAH 1,347 bln (vs. UAH 1,331 bln in the first draft). The
planned budget deficit is UAH 247 bln (vs. UAH 260 bln in the first reading),
or 5.5% of expected GDP.

The major changes from the first budget reading were mostly
related to the distribution of expenditures on road reconstruction and
development.

Evgeniya Akhtyrko: The adopted
budget is a compromise document adjusted from the first reading to comply with
the IMF’s vision of a “realistic” financial plan for the country which greatly
needs the financial support of international financial institutions.

However, we believe it is a counterproductive practice
to adopt the budget with a deficit above a generally accepted “safe” level of
3% of GDP when no emergency spending is needed. In a country with notorious
corruption, weak institutions and a government propensity for populism,
increased budget expenditures are not likely to create an additional safety net
for a vulnerable public and/or new economic incentives. Instead, it is likely
to create new areas of corruption and undermine fiscal discipline.