Parliament approves budget amendments which should unlock the IMF loan

UKRAINE - In Brief 03 Mar 2015 by Dmytro Boyarchuk

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On March 2 Ukrainian parliament approved changes to the spending plan 2015. Revenues’ target for state budget was set 37% higher than actual collections in 2014 (UAH 498.2 billion vs. UAH 363.6 billion). Central budget deficit was also increased to UAH 76.3 billion which is 4.1% of GDP. Combined deficit (including Naftogaz and other quasi-fiscal outlays) reached 8.8% of GDP. Budget is built on assumption of hryvnia exchange rate at 21.7 hryvnia per $1. It presumes cut of privileged pensions and outlines further strong increase of energy tariffs throughout the year. The amendments are expected to unlock IMF funding for the country. We already wrote that the spending plan is overoptimistic and it is built on large-scale hryvnia printing. Surviving with such budget is possible only with impressive foreign currency support. The IMF committed $17.5 billion loan for the next four years. In our view only if the IMF provides $10 billion from the sum immediately (that is what the Cabinet hopes for), Ukraine will be in relatively safe position over the nearest future. Otherwise further devaluation and more problems in economy are inevitable. What more, to ‘neutralize’ the planned hryvnia printing the country will need extra funds available for FX interventions (on the top of the IMF $10 billion which will be used for external redemptions) which should arrive promptly after the IMF approves the loan. According to Finance Minister Natalie Jaresko the IMF Executive Board will consider the loan approval on March 11.