Ukraine general budget reaches UAH 32.5 bln surplus in 9M15

Ukraine’s general budget revenue kept growing impressively in September at 49.1% yoy (+UAH 18.5 bln) after a 50.4% yoy increase in the prior month. National Bank of Ukraine (NBU) support (UAH +8.0 bln yoy), a 3.2x yoy surge in import duty revenue (UAH +2.7 bln) and 26.6% yoy growth in personal income tax collections (UAH +1.8 bln) were the key sources of budget revenue growth in September.

Spending sped up somewhat to 22.1% yoy in September, compared to 17.7% yoy in August. As a result, the September general budget surplus narrowed to UAH 4.2 bln compared to UAH 12.9 bln in the prior month. A surplus was achieved at both the local (UAH 3.1 bln) and central (UAH 1.1 bln) budgets.

In 9M15, general budget revenue increased 40.3% yoy while spending grew 19.0% yoy. The general budget surplus for nine months reached UAH 32.5 bln, primarily on the back of local budgets’ surpluses (UAH 23.7 bln).

Alexander Paraschiy: The budget performance remains impressive. However, this success stems from one-time or temporary collections (the NBU support and extra import duties). At the same time, we are observing that budget revenue net of temporary collections are slowing: +20.9% yoy in September compared to 26.9% yoy in the prior month. For sure, this tendency hardly threatens the fiscal balance for 2015 given the substantial accumulation of funds by the end of September. 

However, these developments pose dangers for the 2016 budget. More than UAH 60 bln of collections in 2015 will not resurface next year, including nearly UAH 30 bln from the NBU, a UAH 9.0 bln windfall from the sale of a 3G license and nearly UAH 24 bln in extra import duties. Against this backdrop, the Finance Ministry is faced with the challenge of balancing the 2016 budget with a 3.7% of GDP deficit (according to IMF requirements) under a substantial decline in state collections. 

In this context, the authorities should decide either to cut spending substantially or to table its tax reform plans. So far, the Cabinet has not presented a vision on how to address this challenge.

Due to the uncertainty in the fiscal area, we anticipate a delay with the next IMF wire. The Fund will certainly wait until a realistic goverment spending plan for 2016 is approved.