CES proposes 2021 state budget deficit cut to 3% of GDP

6 October 2020

Sept 28 (Interfax-Ukraine) – The Centre for Economic Strategy (CES) has proposed that the deficit of the national budget for 2021 is cut from 6% of GDP to 3%, Deputy Director of the center Maria Repko has said.

The budget deficit of 6% of GDP must be reduced to 3%. The rapid economic recovery allows for a smaller deficit,” Repko said at a press conference at Interfax-Ukraine on Friday, September 25.

She said that the growing budget deficit is a threat to financial stability and may affect the deepening of the economic crisis.

“6% of GDP of the budget deficit. We see that the more this budget deficit grows.., the deeper the economic crisis becomes. In the last three years… the state has managed to maintain a conservative fiscal policy, now we see that it is likely that they will quit it,” she said.

Repko also said that the receipts that are budgeted for 2021 are at the maximum level: the government expects a large increase in VAT and other taxes. “It will hardly be possible to squeeze more out of the economy,” she said.

“We see a macroeconomic forecast: GDP growth is 4.6%, inflation is 7.3%. This may not happen. If the budget does not receive funds, the tax and customs officials will squeeze them out of business,” the deputy director of the CES said.

Speaking about threats to financial stability, Repko also pointed to the need to finance the budget deficit. “Relations with the IMF are complicated, and the Ministry of Finance proposes to finance the deficit in the domestic market, where the necessary funds may simply not be available. Narrow government bonds market… We see that they are all [private players: population, foreign and private banks, nonresidents] in general, they hold less (UAH 288 billion) than our government wants to place in the next 15 months (UAH 550 billion),” the deputy director of the CES said.

Another threat to financial stability, according to Repko, is the rejection of the ceiling on guaranteed debt and, as a result, the risk of large quasi-fiscal expenditures.

She said that next year the government must pay over UAH 13 billion to Ukravtodor’s creditors. “These are such quasi-fiscal expenditures, which, in principle, should have been included in the budget, but they are not included there, the budget deficit is already very large,” the deputy director of the CES said.