Ukrainian treasury accounts surge 1.9x in January

Residuals at Ukraine’s treasury accounts surged 85% m/m to UAH 16.7 bln as of Feb. 1, according to Ukraine’s State Treasury report. It was the highest year-start level of treasury residuals since 2006, when residuals reached UAH 19.5 bln due to proceeds received from the privatization of Kryvorishtal steel mill. As of Dec. 1, 2015, the residuals in treasury accounts had risen to UAH 48.0 bln (2.5% of GDP) as the result of an impressive budget surplus.

Alexander Paraschiy: It is difficult to draw any conclusions from the increased treasury residuals in January. In fact, it is a typical result at the start of the year when earnings are higher than spending. Moreover, in January the treasury saved about UAH 14 bln in pension payments, which were paid in advance in December 2015. At the same time, the record high nominal level of residuals is primarily a reflection of 49% yoy CPI growth in 2015 rather than successful state collection.  Meanwhile, we see substantial risks for budget implementation in 2016, which will be complicated by significant tax rules revision (including a payroll tax cut from 37% down to 22%) and continued economic problems amid sliding resource prices.  Nevertheless, we expect the Finance Ministry to keep budget deficit no more than 3.7% of GDP in 2016, as committed to the IMF, whatever happens with budget proceeds.