​A conservative budget 2020: the IMF should be happy

UKRAINE - In Brief 14 Nov 2019 by Dmytro Boyarchuk

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Just on the day of the IMF mission arrival (Nov 14) Verkhovna Rada of Ukraine voted in final version of spending plan 2020. The approved budget 2020 has a modest deficit target of 2.1% of GDP, which should please the IMF officers. Revenues are based on a GDP growth forecast of +3.7% y/y and inflation forecast of +5.5% y/y for 2020. The target looks realistic in light of current positive trends. Initially Minfin assumed UAH 28.2/ USD average exchange rate for the hryvnia for 2020. However, steadily strong national currency with subsequent budget revenues shortfall on imports made the Finance Ministry change its view. At the final version of the budget the hryvnia was assumed at UAH 27/ USD on average through the year with respective downwards adjustment of import taxes proceeds. On spending side nothing extraordinary could be reported. Except for the point that housing subsidies have been fully monetized and the total sum of outlays on those needs has dropped due to household incomes' growth (see the table below). Pension Fund subsidy stays modest meaning that no generosity with pensions should be expected. Privatization revenues target was slightly increased for the second reading (up to UAH 12 billion from UAH 5 billion); however, still the number remains modest against the backdrop of declared ambitious privatization plan. To sum up: the IMF should be happy with the approved spending plan 2020. Let’s see how the Fund treats the other stories we are living through these days.