Ukraine targets central budget deficit at 3.7% of GDP in 2015

Ukraine’s Finance Ministry has targeted its 2015 central budget deficit at 3.7% of GDP, the Interfax news agency reported on Dec. 8, citing anonymous sources in the government. Nominal GDP is projected at UAH 1,720 bln, real GDP is estimated to decline 4.5%, and CPI is expected to increase 13.5%. The ministry expects the 2014 central budget deficit to be no more than 4.2% of GDP, the level approved by the IMF.

Alexander Paraschiy: At first glance, cutting the central budget deficit only by 0.5% of GDP shouldn’t be a hard task; however, we should keep in mind that spending cuts this time will be related directly to social liabilities (healthcare, education and social assistance). Amid rapidly declining gross international reserves (anticipated to fall to near USD 7 bln by the end of December), it is vital for the authorities to narrow the fiscal gap, which is the top demand of the IMF.

So far, we do not have any details of the planned spending cuts but we have the impression that the intentions are quite serious based on the statements of new Cabinet members. For sure, a lot will depend on whether the 2015 budget is approved this month and what it will look like, particularly state firm Naftogaz. Still, the intention, in and of itself, is a positive signal.