Public debt grows to $33 billion in July; Budget deficit up to Hr 17.8 billion in January-July; Ukraine negotiates lower gas imports for 2010; Labor unions block gas price hike for households; Domestic oil price keeps sliding.
Public debt grows to $33 billion in July
Ukraine’s public debt increased by 16 percent to $33 billion (27 percent of gross domestic product) in July after the government received a $3.3 billion loan from the International Monetary Fund and issued Hr 9.5 billion of domestic debt to raise funds needed to bail out three troubled banks. Ukraine has already borrowed $8.7 billion so far in 2009, mostly from the IMF, but will have to attract more debt, domestically and externally, in the coming months to cover the deficits of the state budget and state oil and gas monopoly Naftogaz Ukraine, as well as finance bank recapitalization. With all the planned borrowings, the state’s debt obligations may increase by another $11 billion by the end of the year, bringing total public debt to $44 billion, or 39 percent of GDP. Despite its substantial growth this year, Ukraine’s public debt stock still remains well below the internationally recognized safety level of 60 percent of GDP.
Budget deficit up to Hr 17.8 billion in January-July
Ukraine’s consolidated budget deficit widened sharply to Hr 17.8 billion over January-July, from Hr 13.2 billion in January-June and Hr 3.2 billion in the first five months of the year. Consolidated budget revenues dropped by 6 percent year-on-year in January-July to Hr 151 billion on weaker collection of VAT and customs duties on imported goods as well as worsening corporate income tax receipts. Higher excises on alcohol and tobacco and stronger non-tax receipts only partly offset those declines. At the same time, budget spending increased by 10 percent year-on-year to Hr 169 billion in the seven months, despite the widening revenue shortfall, as the government sharply reduced capital expenditures but kept financing its massive social outlays. The January-July budget gap was likely covered by domestic borrowings as well as by $1.5 billion from the IMF, which the fund had disbursed directly to the government in May (in contrast to its normal practice of lending to central banks). Privatization receipts stood at a meager Hr 500 million in January-July.
Ukraine negotiates lower gas imports for 2010
In a rare positive development for Ukrainian-Russian gas relations, Ukrainian Prime Minister Yulia Tymoshenko and her Russian counterpart Vladimir Putin agreed to a revision of the existing contract on gas supplies to Ukraine, allowing the country to import lower gas volumes penalty-free. The current contract between Naftogaz Ukraine and Gazprom stipulates sizeable fines for buying lower-than-stated gas volumes. But according to the new approach, Ukraine will be able to import only as much gas as it needs, without observing the previously agreed import targets. The agreement between Tymoshenko and Putin came weeks after Naftogaz Ukraine asked Gazprom to cut gas sales to Ukraine in 2010 to 25 billion cubic meters (bcm) from 42 bcm envisaged by the current agreement. Ukraine consumed about 70 bcm of gas annually in the previous several years of its economic boom, but consumption is set to fall to about 50 bcm this year amid a sharp economic slowdown.
Labor unions block gas price hike for households
Ukraine’s Federation of Labor Unions refused to back the government’s plan to increase gas prices for households, forcing the authorities to leave the current below-cost tariffs unchanged. The Federation said its approval was required for the Justice Ministry to register and enact the National Energy Regulating Commission’s (NERC) recent resolution that ordered to increase gas prices for households by 20 percent as of Sept. 1 and continue with 20 percent quarterly hikes so as to bring household tariffs in line with respective market prices. The news is obviously negative for Ukraine’s upcoming talks with the IMF, as the increase in gas tariffs is one of the fund’s requirements with respect to improving the poor financial state of Naftogaz Ukraine. The news is also negative for Naftogaz itself as the planned gas price hike would have brought the company $20-25 million of additional revenues monthly.
Domestic oil price keeps sliding
The price of Ukrainian oil slid to $16.9/barrel at last week’s auction, hitting its lowest level since December 2002 and bringing the average price of domestic crude in January-August to $18.4/barrel, down 80 percent compared to the same period in 2008. Ukrnafta, the largest supplier of oil at domestic auctions, continues to sell its output at huge discounts to market prices (69 percent below the price of Russian oil blend Urals at the latest auction), fueling speculation that the company is involved in price rigging with affiliated traders. The government recently announced plans to intervene with a regulation that would link domestic oil prices to global benchmarks by limiting the maximum discount to world oil prices that domestic producers can offer.
