Crazy budget disregard IMF staff-level agreement

UKRAINE - In Brief 15 Feb 2015 by Dmytro Boyarchuk
On Feb. 14 the Cabinet approved revised draft budget 2015. So far we know only few numbers but it looks like the suggested spending plan did not experience any austerity measures. In particular, the authorities outlined central budget revenues target at UAH 498 billion which is UAH 134.4 billion more (+37.0% y/y) than a year ago. To compare, in 2014 central budget revenues increased only 7.3% (UAH +24.2 billion). We do not see any source for implementing such optimistic revenues plan except for printing more hryvnia by the Central bank. If such a spending plan is indeed approved, unfortunately, we should be ready for further galloping hryvnia devaluation through the year and more problems arising from this process both at fiscal sector and at the banking system. To make matters worse, with such speding plan the IMF program (with $17.5 billion for four years) does not look to help us much. The IMF funds should be enough to cover external liabilities but we do no see them sufficient for "neutralizing" extra hryvnia pressure at the FX.

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