Parliament hopes to pass 2013 budget ahead of IMF visit

Next year’s $51 billion national budget won’t curry favor with the International Monetary Fund and is characterized by a growing deficit, conservative revenue projections and a weaker hryvnia.

Analysts believe
that fiscal adjustments, as well as the adoption of the budget prior
to the IMF’s Dec. 7 visit to Kyiv, won’t help Ukraine strike a
deal on a new IMF lending program.

The opposition,
which doesn’t support the government’s budget that is scheduled to be adopted
on Dec. 6, said the pro-presidential majority in the outgoing
parliament will rush to pass the budget during its last day in
session because it fears it will be harder for them to muster
enough votes in the newly elected parliament, which is scheduled to
take over on Dec. 12.

The budget sets a
deficit of Hr 50.4 billion ($6.2 billion) or 3.2 percent of gross
domestic product. This is higher than this year’s planned 2.7
percent of GDP deficit.

However, analysts
at Dragon Capital forecast a darker picture, expecting the general
government deficit (excluding state-owned Naftogaz’s deficit) to
reach 3.7 percent of GDP.

The average rate for
the U.S. dollar in the budget is set at Hr 8.3, up from the current
Hr 8, which could indicate increased chances for the currency’s
devaluation next year as the country appears to be heading into
recession.

According to the
budget, GDP growth is forecasted at 3.4 percent, and inflation is
slated to rise by 4.8 percent.

The government plans
to have Hr 362 billion ($43 billion) in revenue next year, which is
3.3 percent down from this year’s target, indicating a moderate
approach to next year’s budget receipts. And expenditures will shrink
by only 1 percent compared to the 2012 target.

Government
still projected 5 percent year-on-year growth in nominal GDP.
According to a Nov. 5 Dragon Capitol report, it “implicitly signals
the government acknowledges risks to current-year revenues.”

Combined with
expected foreign debt of Hr 35 billion
($4.3 billion) at 2.3 percent of GDP, these measures may not be
sufficient for the IMF to unlock lending to Ukraine.

“The announcement
is disappointing as it indicates that authorities fail to recognize
the threat of current macro conditions on the potential
creditworthiness of the sovereign,” reads an Investment Capital
Ukraine report released on Dec. 5 after the draft budget was
submitted to parliament.

ICU predicts the IMF
is unlikely to approve this version of Ukraine’s state budget and
will criticize Ukraine during its Dec. 7-17 visit. According to the
ICU assessment, the budget “indicates that Kyiv is not serious
about following the IMF regimen of fiscal prudence.”

More spending on law
enforcement agencies

The opposition
criticized this budget in particular for increased expenditures on
the police and the prosecutor’s office, calling it a step to create a
“police state” in Ukraine. However, law enforcement bodies say
that even with the planned increase the financing is not sufficient.

The General
Prosecutor’s Office is slated to get the
largest increase. The prosecutor’s office is often blamed for
targeting opposition politicians in what is often referred to as
politically motivated persecutions, a charge denied by prosecutors.
Funding for prosecutors will increase by 20.7 percent to Hr 3.2
billion.

The Interior
Ministry will have a little over Hr 15 billion to spend in 2013,
which is a half-billion hryvnias more compared to this year.
Spending on the police has grown by Hr 3 billion since 2010.

The Interior Ministry said
this amount of funding will cover mostly salary payments and is only
half of the needed money.

Ukraine’s foreign
intelligence body will get half a billion hryvnias more next year
compared to 2012. And the Security Service of Ukraine, known by its
SBU acronym, will get an insignificant increase of Hr 156 million
with a total budget of Hr 3.4 billion.

State budget
expenditures on major public offices

(in billions of hryvnias)

Sources: Ukraine’s
state budget for 2012 and draft budget for 2013

Kyiv Post staff
writer Yuriy Onyshkiv can be reached at [email protected]