Ukraine general budget reports UAH 28.3 bln surplus for 8M15

Ukraine’s general budget revenue surged 50.4% yoy in August, compared to 69.5% yoy growth in the prior month. Spending growth slowed to 17.7% yoy compared to 30.9% yoy in July.  As a result, the general budget balance in August was reported at an impressive UAH 12.9 bln surplus compared to a UAH 3.1 bln surplus in the prior month. The August surplus was achieved primarily due to central budget accumulations of UAH 10.0 bln.

In 8M15, general budget revenue increased 39.5% yoy while spending grew 18.6% yoy. The general budget surplus for 8M15 reached UAH 28.3 bln, primarily due to a UAH 20.6 bln surplus of local budgets.

The main sources of the August revenue increase was NBU support (UAH +7.0 bln), a VAT collections upsurge (by 44.7% or UAH +6.8 bln), a 3.7x increase in import duties (UAH +2.6 bln), a 2.3x increase in revenues from mineral extraction tax (UAH +2.4 bln) and 40.6% yoy growth in personal income tax collections (UAH +2.4 bln). 

Alexander Paraschiy: The 2015 budget is on the safe side.  For sure, nearly half of the August increase was due to temporary revenue sources (UAH 7.0 bln from the NBU and UAH 2.4 bln from extra import duties).  However, even net of those temporary collections, revenue grew 26.9% yoy in August, which is a very good result.

The impressive budget surplus still remains the outcome of delayed spending, especially in local budgets. Against this backdrop, we expect a dramatic upsurge in public spending in 4Q15. By the year end, we still anticipate a 4.2% of GDP deficit for the general budget.

Fiscal prospects for 2016 remain murky. The budget will lose nearly UAH 63 bln of temporary revenue available in 2015 (nearly UAH 30 bln less from the NBU, UAH 9.0 bln lost from the 3-G license and nearly UAH 24 bln in extra import duties). Authorities are also discussing a “popular tax reform,” which could mean extra revenue losses. 

All that should be matched with a commitment to the IMF to keep the general budget deficit below 3.7% of GDP. How the authorities will solve the task it is a question that has yet to be answered (either strong budget cuts or no tax reform). What’s certain is the Cabinet won’t dare exceed the IMF’s outlined deficit limit.