MinFin submitted to Verkhovna Rada a revised spending plan 2021 allegedly approved by the IMF

UKRAINE - In Brief 29 Nov 2020 by Dmytro Boyarchuk

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On November 26th the Cabinet finally submitted to the parliament a revised spending plan 2021 for the second reading. Minister of finance, Sergiy Marchenko claimed this version of spending plan 2021 was allegedly positively evaluated by the IMF. However, from the details, which have been released on November 27th, it’s not clear what made the IMF so optimistic on this spending plan. The deficit was indeed narrowed down to 5.5% of GDP from 6.0% of GDP suggested initially. However, that was achieved primarily at the expense of boosting already optimistic revenues target. Part of that increase comes from introduction of gambling licenses (UAH 7.4 billion or 0.2% of GDP). But it's still unclear why VAT on domestic products might suddenly surge by 58% y/y in 2021 which means that at least near UAH 40 billion or 1.0% of GDP of targeted revenues are at risk. To make matters worse the spending plan presumes UAH 88.7 billion or 2.0% of GDP state guarantees on loans which are latent outlays that inevitably add up to the public debt. We have no official reaction of the IMF to the submitted spending plan. And we suspect there might be a portion of wishful thinking in positive messages from MinFin. We expect the budget to be approved shortly at the parliament without long discussions.