Ukraine cabinet drafts 2021 budget with 6% of GDP deficit

Ukraine’s Cabinet of Ministers approved the 2021 draft
budget on Sept. 14 and submitted it to parliament, the Interfax-Ukraine news
agency reported. General budget revenues are planned to increase 9.4% yoy to
UAH 1,071 bln, while budget outlays are set to increase 5.1% yoy to 1,350 bln.
The budget deficit is targeted at 6% of GDP, real GDP growth at 4.6% yoy,
consumer inflation at 7.3% YTD and the average exchange rate at UAH 29.10/USD.

The government aims to reduce the state debt to 64.6%
of GDP in 2021. State borrowing is planned at UAH 684.7 bln. In particular, the
receipts from the placement of Eurobonds are expected at USD 3 bln, while IFI
borrowing should amount to USD 1.5 bln. Privatization receipts are expected at
UAH 6 bln.

The minimum wage should amount to UAH 6,000 starting
Jan. 1, 2021 and UAH 6,500 starting Sept. 1, 2021.

Commenting on the budget deficit, Finance Minister
Serhiy Marchenko noted that “Ukraine cannot be the ‘white crow’ while most
countries in the world enlarge their budget deficits.”

Evgeniya Akhtyrko: The major
issue of the presented budget is its projected 6% of GDP budget deficit, which
looks large for a year when the economy’s growth is expected at 4.6% yoy at the
same time the country is not likely to face extraordinary expenditures on
anti-pandemic measures. Marchenko’s remark that Ukraine should enlarge its
budget deficit because most countries will do this in 2021 is not an effective
argument. In fact, Ukraine’s economy cannot afford the same luxury as developed
economies as its recovery in 2016-2019 was not enough to cover the huge
economic downfall of 2014-2015.

Apparently, the Zelenskiy administration will argue
that the increased budget expenditures will stimulate economic recovery, as the
outlays for government infrastructure projects are to be hiked significantly.
However, the effectiveness of such budget expenditures are questionable given
the high level of corruption usually related to budget-financed projects in
Ukraine. Taking into account the recent negative developments that might result
in the dismantling of the anti-corruption
infrastructure in Ukraine,
budget spending oversight is not likely to improve.