Consolidated budget deficit narrows; Budget revenues deteriorate further; Public debt up 5.6 percent to $35 billion, Crude steel output down 10 percent.
Consolidated budget deficit narrows
The Finance Ministry reported a consolidated budget deficit of Hr 16.7 billion for January-August (cash basis); marking an improvement from an Hr 17.8 billion gap in January-July. The consolidated budget ran Hr 1.1 billion surplus in August as revenues jumped by 24 percent month-on-month, to Hr 24.8 billion, with the approach of a corporate tax payment deadline, while expenditures declined by 3.7 percent month-on-month, to Hr 23.7 billion, on seasonal drop in wages and salaries of public sector employees. The improvement in fiscal sphere is supposed to be temporary and the consolidated budget balance is expected to turn into red again in the coming months. After a one-off seasonal spike steered by corporate tax payment deadline, revenue collection is set to decline again, while expenditures need to be increased, as the government will not be able to economize on social spending on the eve of presidential elections. The full-year consolidated deficit is forecasted at Hr 58 billion, or 6.2 percent of gross domestic product.
Budget revenues deteriorate further
The state treasury reported January-September state budget revenues (net of budget-dependent entities’ own receipts) at Hr 132 billion, or 2.7 percent above the government’s target. Total budget revenues over the period are estimated at Hr 148 billion (down 12 percent year-on-year). With the April-June corporate tax fully paid out in August, the state budget revenues naturally declined in September, to estimated Hr 13 billion (-33 percent month-on-month). Assuming that September expenditures remained at their year-to date monthly average of Hr 19 billion, the state budget deficit widened to about Hr 6 billion last month bringing the January-September gap to Hr 22.5 billion, or 2.4 percent of expected 2009 GDP. The widening of the budget deficit in September was quite expected, supporting a view that the state budget balance will continue deteriorating further, especially closer to year-end when expenditures typically rise. The full-year state budget gap is expected to reach Hr 52 billion (5.5 percent of GDP). The general government deficit, which includes deficits incurred by local budgets and the quasi-fiscal sector, is set to reach Hr 93 billion (10 percent of GDP).
Public debt up 5.6 percent to $35 billion
Ukraine’s public debt (direct and conditional) rose by another 5.6 percent month-on-month in August, to $35 billion (+43 percent year-to-date; 30 percent of expected 2009 GDP) due to treasuries issued to recapitalize Naftogaz. A Hr 18.6 billion share capital increase of the state oil and gas monopoly was financed through 8-, 9- and 10-year Treasuries issues that pushed direct domestic debt up 25 percent month-on-month to Hr 82billion ($10.3 billion). Direct external debt declined by 2.2 percent month-on-month in September due to repayment of $500 million Eurobond by the state. Yet, with $4.6 billion International Monetary Fund budget financing that drove direct foreign liabilities up in previous months, Ukraine’s end-August direct debt stood at Hr 205.4 billion ($26 billion), exceeding the end-year limit set by budget law by 6.5 percent. It is expected that Ukraine’s public debt to continue growing this year on further bank recapitalization and international financial institution financing, reaching $44 billion (or 39 percent of GDP) by the year-end. Yet new debt obligations will impose only a moderate burden on the budget as all new external borrowings are cheap international financing institution loans while a substantial part of the newly issued domestic debt consists of low-cost Treasuries financing bank recapitalization and Naftogaz capital increase.
Crude steel output down 10 percent
Crude production of steel, Ukraine’s No. 1 export and source of hard currency, dropped 10 percent month-on-month, to 2.4 million tons (-2 percent year-on-year) in September, on weaker foreign demand and raw material shortages. Total crude steel output in January-September reached 21.7 million tons (-31 percent year-on-year). Metallurgprom, the domestic association of steel mills, forecasts pig iron production to increase by 18 percent month-on-month, to 2.46 million tons (+56 percent year-on-year) in October. However this target is considered to be too optimistic, given weakening demand from the Middle Eastern countries, and intensifying competition with Chinese steel exporters. Therefore it is not ruled out that crude steel output will drop further in October to 2.3-2.4 million tons of crude steel (+26 percent year-on-year). For the full year, domestic crude steel production is forecasted at 30 million tons (-19 percent year-on-year).
