Visionary spending plan 2021

UKRAINE - In Brief 16 Sep 2020 by Dmytro Boyarchuk
On September 14th Ministry of Finance presented spending plan 2021 to public.Next day it was published in details on the web-site of Verkhovna Rada. Minfin assumes a 4.6% GDP growth, 7.3% ytd (or 8.7% y/y) consumer inflation and UAH 29.1/ USD on average in 2021.Such approach allowed to boost nominal GDP forecast to UAH 4505.9 billion, which is near UAH 300 billion more than we estimated previously.Roughly, only due to overoptimistic macro-parameters the revenues’ target looks excessive by near UAH 85 billion or 1.9% of GDP. Personal income tax, VAT and excise duties will be the main pillars of tax collections’ increase.Personal income tax is expected to surge on the back of a 20% increase in minimum wages from January 1st 2021 (extra 8.3% increase in July 2021).Excises duties are expected to grow on the back of increased excise rate.What will be the reason for a 68.4% surge in VAT on domestic goods – is a mystery. Minfin claims that VAT will be more efficiently administered but it’s a very shaky plan under current Ukrainian leadership. A substantial drop in non-tax revenues was budgeted for 2021 in line with falling “dividends from the NBU” and lower profits’ deduction from state owned enterprises. Recall, in 2020 the Cabinet requested Naftogaz, Privatbank and other state-owned companies to deduct hefty part of their profits to the budget to offset budget losses amid COVID-19 crisis. Naturally, profit deductions will drop after the stash was exhausted this year. On the spending side we see boosted outlays on education, healthcare and social assistance.Almost quadrupled state guarantees on loans (up to UAH 70.9 billion or 1.6% of GDP) that will be allocated on road reco...

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