Budget-2018 overview

This year no quantum leap happened in either budget planning or revenues/expenditures structure.  The Parliament failed to adopt the medium-term budget resolution for 2018–2020 and scarcely ever link the new expenditure proposals to either strategic priorities for the state or corresponding income sources. Between the 1st and the 2nd hearing the MPs boosted the budget expenditures by almost UAH 40 bln. This means that should the budget be amended any time during 2018, the 2.5% of GDP budget deficit target is at risk. There are also several worrisome factors within revenues and expenditures incl. realistic achievement of pensions and non-tax revenues targets.

The most significant change made to the expenditures in the budget for 2018 is the increase in expenditures on the economic activity, public order as well as on the general government functions against the previous year.
To assess if this is right or wrong direction, we compared the functional breakdown of expenditures in Ukraine to those of EU member countries that became the EU members after 2004. Those countries can be used as a reference model for the optimal budget structure in Ukraine.

The comparison of the expenditures by function between Ukraine and chosen peers demonstrates that the budget for 2018 generally does not come close to the optimal expenditures level by the functional categories. Healthcare, economic activity, general public expenditures, culture and environmental protection are still noticeably underfunded if compared to the CEE countries. At the same time the social protection, education, civic order, debt servicing receive relatively larger share of the expenditures than in the CEE countries. In comparison with the previous years, in 2018, the only progress in the right direction is the rise of the economic activity spending (at the expense of the roads fund). The rest of the categories (except the defence sector) demonstrate no significant improvements.

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