Ukraine aiming for 3% of GDP budget deficit in 2015

Ukraine’s Economy Ministry has agreed with the Finance Ministry upon a 3% of GDP target level for the 2015 central budget deficit, Deputy Economy Minister Roman Kachur told a Dec. 10 session of the economic policy parliamentary committee. Earlier this week, Interfax-Ukrayina reported that Ukraine’s Finance Ministry had targeted the 2015 budget deficit at 3.7% of GDP, citing anonymous sources in the government. Recall, the 2014 budget approved by parliament projects the deficit (net of loans) to be no more than 4.2% of GDP, a level approved by the IMF.

Alexander Paraschiy: Our various sources in the government have confirmed the Cabinet’s serious intentions to cut spending and narrow the budget deficit, which looks encouraging in the context of the current IMF talks. The Cabinet has proposed a sharp deficit cut primarily due to its desire to receive more IMF funding. The spending plan is still under discussion so we don’t view the declared 3% of GDP as the final number, though the IMF would be happy if such a deficit target is approved.

To reach such a central budget deficit, the authorities will have to freeze social payments and even suggest some spending cuts worth 1% of GDP. It will be painful but quite feasible if the political will is there. If the central budget deficit ends up close to 3% of GDP, the next IMF tranche (at least USD 2.8 bln) should be secured in early February 2015.