Spending plan 2024: assuming a narrower deficit amid dominating uncertainty

UKRAINE - In Brief 17 Sep 2023 by Dmytro Boyarchuk
On September 15, the Cabinet submitted the draft for the 2024 spending plan to the parliament. The design of the 2024 spending plan closely mirrors what we observed last year. The authorities anticipate active military action continuing until mid-2024, leading to a planned reduction in defense spending. Based on the assumption of diminished military actions by mid-2024, the Ministry of Finance projects a reduced deficit of 20.4% of GDP, down from the nearly 30% of GDP expected for this year. This plan relies heavily on continued substantial funding from abroad, amounting to $41.4 billion (media reports suggesting $42.8 billion). Expected contributions are $9.0 billion from the EU, $5.4 billion from the IMF, $2.0 billion from the IBRD, with the remaining $25.0 billion anticipated from the US government and other creditors. Commitments for funding from both the EU (€50 billion for 2024-2027 under the Ukraine Facility framework) and the IMF are already in place. However, US funding for 2024 is yet to be approved. A notable aspect of the spending plan is the macro-forecast upon which it's based. This starkly contrasts with the NBU's strategy to curb inflation, especially in light of the recent comments by the Minister of Finance about the downsides of an overly robust hryvnia. Furthermore, the Ministry of Finance projects an exchange rate of 41.4 hryvnia per dollar for 2024, while the current official rate is 36.57, with the retail rate fluctuating between 37 and 38. Consequently, the Ministry of Finance's calculations are based on a tax base nominally higher than what the NBU detailed in its July inflation report. Predicting the resolution of this discrepancy between the ...

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