Ukraine 2017 budget finishes in red after December spending

Ukraine’s general budget revenue rose 1.6% yoy to UAH
92.3 bln in December (from 3.3% yoy growth in the prior month), the National
Bank of Ukraine reported on Feb. 1. The growth was driven by collection of the
value-added tax (57% yoy), personal income tax (31% yoy), and excise duties
(22% yoy). A high comparative base caused collection of the enterprise profit
tax to drop 62% yoy and rent on mineral extraction to fall 34% yoy. In 2017,
general budget revenue increased 29.9% yoy.

Amid modest revenue growth, December’s fiscal spending
skyrocketed 23.4% yoy to UAH 165.4 bln (from 22.1% yoy growth in the prior
month). As a result, the general budget surplus that had been observed for
11M17 switched to a deficit of UAH 73.1 bln in December, causing a full-year
deficit of UAH 40.0 bln. Nonetheless, the deficit was 24.5% smaller on a yoy
basis. A UAH 46.0 deficit in the central budget was partially offset by a
surplus of UAH 6.0 bln in regional budgets.

Evgeniya Akhtyrko: The
Ukrainian government extended its heavily criticized practice of postponing a
significant part of its planned budget spending until December by accumulating budget receipts on its treasury account.
The cautious spending throughout the year led to a deficit that was lower than
projected in the 2017 fiscal plan. At the same time, economic revival, high
inflation and improved tax collections caused 2017 revenue growth to exceed the
ambitious government target of 28.3% yoy.

The combination of higher revenue and tightened spending
enabled the government to reduce its foreign and domestic borrowings to finance
the deficit. The general budget deficit of UAH 40.0 bln amounts to 1.4% of GDP
in 2017 (compared to UAH 53 bln, or 2.2% of GDP in 2016), according to our
figures, which is a result that’s sure to impress Ukraine’s creditors.

Ukraine’s 2018 budget plans for a 18.5% yoy state
revenue growth and 2.5% of GDP deficit, which is realistic in light of high inflation expectations.