Ukrainian budget is risky

RUSSIA / FSU POLITICS - In Brief 17 Sep 2020 by Alex Teddy
The government has submitted its budget proposal. The budget has been criticized by the Center for Economic Strategy. There are three major issues with it which could impair macroeconomic stability.The deficit is planned to be USD 9.6 billion. That is 6% of GDP. This debt will cost a lot because Ukraine is charged high rates of interest. The country is already deeply in debt. Servicing the existing debt is already a struggle.The budget includes a projected inflation of 7.3% which is rather higher than the current inflation rate of 2.4%. The government forecasts inflation tax. That means rising prices cause a rise in nominal tax amounts. This allows the government to finance major expenditure. The National Bank's target for inflation is 5%. The government's revenue is likely to reduce and not increase.The government is raising the minimum wage and this might damage the economy. Ukraine's selling point is that it is cheaper to employ people here than in almost any other country in Europe.The budget is risky. Spending is rising and so it taxation. Investment incentives will be reduced. The budget has been made for political and not economic reasons.

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