Ukraine central budget deficit reaches UAH 31 bln in 9M14

Макроэкономика 03.11.2014 Ukraine’s state budget deficit rose UAH 4.3 bln in September to reach UAH 31.2 bln in 9M14, the Finance Ministry reported on Oct. 31. The monthly deficit increase was much higher than a year ago (UAH 0.1 bln for September 2013), yet the cumulative amount for 9M13 was lower at UAH 34.6 bln. Ukraine’s IMF loan memorandum allows the budget deficit to reach UAH 63.8 bln, or 4.2% of GDP. Alexander Paraschiy: The low 9M14 cumulative deficit level is a positive development. However this year, the quasi-fiscal deficit is much more important. In particular, in 9M14 Naftogaz was recapitalized for UAH 96.6 bln by the state budget, which is 3x more than the reported headline deficit of the central budget. What’s more, the relatively modest central budget deficit till September promises that a major part of the planned 2014 spending will occur towards the end of the year. Thus, we should anticipate an upsurge in the 4Q14 fiscal gap. It’s a long-held tradition that MinFin delays all its spending till the year end and it’s very unlikely the scenario will be any different this year. Given that the Cabinet does not have any resources to cover the budget deficit, we should anticipate an upsurge in hryvnia printing over the upcoming weeks. At the same time, we do not believe the authorities will break their commitment to the IMF budget deficit limit.