Ukraine 2020 state budget approved with 2.1% of GDP deficit

Ukraine’s parliament approved the 2020 state budget on
Nov. 14 in the second reading with revenue of UAH 1.094 bln and outlays pegged
at UAH 1.180 bln. The budget deficit is expected at 2.09% of GDP. The budget
plan is based on the assumptions of 3.7% real GDP growth and consumer inflation
of 5.5%. The budget was approved by 280 MPs (compared to 226 votes needed),
with most of the votes coming from The People’s Servant faction.

MPs also voted for an amendment prescribing revenues
from an excise tax on gasoline to local budgets after the cabinet had intended
to peg these revenues to the central budget’s Road Fund, which planned to
distribute the receipts to finance its road development program.

Evgeniya Akhtyrko: As we predicted the budget’s
second reading didn’t involve major amendments. Importantly, there were no
amendments on the expenditure side, which would have been announced and voted
directly upon on the floor without preliminary approval by the budget
committee.

To approve the bill, the People’s Servant faction,
which forms the majority, had to find a compromise with its members who were
elected by single mandate districts and demanded more revenue to be channeled
to the local budgets.

Overall, this is a realistic budget that will
please Ukraine’s Western lending partners, particularly the IMF. However, there are other issues like the fight
against corruption, the situation with Privatbank and NPLs of other state
banks, the central bank’s independence and Ukraine’s energy policy that are not
likely to make the negotiations easy.