Spending plan 2023: budget deficit of 20.6% of GDP and huge spending on defense

UKRAINE - In Brief 04 Nov 2022 by Dmytro Boyarchuk

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Yesterday, on November 3nd, Verkhovna Rada approved spending plan 2023. It presumes a deficit of 20.6% of GDP or $30.7 billion. Also the plan defines huge spending on defense on the level of $27 billion or 18.2% of GDP (44% of total budget spending). The approved spending plan tells that the deficit will be funded from external loans (the target for external borrowings is $38.2 billion for 2023). However, state officials tell it explicitly that we expect the major part of needed funding to arrive as grants. The US and the EU has already committed to provide $1.5 billion and €1.5 billion, respectively, in grant support every month, according to the Head of parliamentary committee on tax policy Danylo Getmatsev. The budget was developed on assumption that Ukrainian economy will drop 33.2% y/y this year and will pick up by 3.2% y/y in 2023. The hryvnia is assumed to be 42.2 hryvnia per 1 dollar on average in 2023. The deficit 2023 looks as a real challenge. It could be covered only if Western support continues. Still, the challenge of 2022 was much bigger. Spending plan 2022 presumes the deficit target 31.7% of GDP (as of end of October 2022). Thus compared to the ongoing year the tasks for 2023 look as a scale down of complexity.