Ukrane 2016 budget deficit reaches 2.4% of GDP

Ukraine’s general budget deficit reached UAH 54.7 bln in 2016, the State Treasury reported on Jan. 27. The central budget deficit reached UAH 70.1 bln, while local budgets preserved a surplus of UAH 15.5 bln.

For the year, budget revenue grew 20.1% yoy (UAH 130.8 bln yoy) to UAH 782.8 bln, which is slightly above the year-end target. The gains were driven by a 32.0% yoy (UAH 57.1 bln yoy) increase in VAT collections, 38.8% yoy (UAH 38.8 bln yoy) growth in personal income tax revenue, a 43.7% yoy rise (UAH 31.0 bln yoy) in excise duties and 54.2% yoy growth (UAH 21.2 bln yoy) surge in the enterprise profit tax. In the meantime, import duties plunged 49.8% yoy (UAH 20.0 bln yoy) and the NBU profits fell 38.2% yoy (UAH 23.6 bln yoy).

General budget spending increased 22.9% yoy to UAH 835.6 bln, which is UAH 47.7 bln (5.4%) below the year’s spending target.

Alexander Paraschiy: The reported budget deficit was much lower than we expected, or nearly 2.4% of GDP instead of 3.7% targeted initially, owing to stronger revenue on the one hand and lower spending on the other.

For 2017, we anticipate the fiscal situation to maintain such stability. Firstly, the targeted revenue level looks more or less feasible (18.6% yoy for the central budget) amid an extra excise duty hike and abolished residuals from a special tax regime for agri-producers.

Secondly, the doubled minimum wage, as well as ForEx volatility at the very start of the year, likely will spur stronger inflation with a subsequent positive effect on budget collections.

All in all, we see a 3.0% of GDP deficit in 2017 as a safe target, especially in light of traditional underperformance on the spending side.