A severe crisis is already this spring. What are the risks of the 2021 state budget for Ukraine

Pavlo Kukhta

Former Acting Minister of Economy of Ukraine

On Tuesday, December 15, the Verkhovna Rada is to consider the state budget for 2021—on Monday, the project was approved by a parliamentary committee. However, after the meeting of the Servant of the People faction, Speaker Dmytro Razumkov urgently convened a budget committee to balance the figures. So the process may be delayed. What are the risks of an approved draft budget?

The basic problem of the draft state budget-2021 is that it already implies a high deficit of 5.5% of GDP. In addition, a very high income base is prescribed that is unsupported.

For example, yesterday came a letter signed by the head of the State Customs Service, stating that they would not be able to fulfill this plan. By the second reading, the income figures were unreasonably padded, but it is not clear where to get this money from.

It is needed to clearly cooperate with the IMF in order to be understandable and transparent for Western investors.

This means the constant lack of funds and will have to be covered with borrowings. And we need $10 billion just to refinance our previous debts. That is, it is needed to involve a great deal of money.

And this means that Ukraine will again be completely dependent on external partners. Of course, the government will try to take most of the money from foreign markets, but here the IMF is needed to get sufficient amounts.

That is, it is necessary to clearly cooperate with the IMF, to receive a "green signal" from it in order to be understandable and transparent for Western investors.

What is the main risk of the prescribed budget: it, of course, can be drafted with a large deficit if a politically stable competent government is working. And if strictly following the IMF program, playing by the rules, then everything can go well.

But now the influence groups in Ukraine that are constantly trying to shatter the situation, received a signal with this draft: the money seems to be there.

Conclusion: they can do whatever they want—money will still arrive. And there is a big risk that at the beginning of the year some of the influence groups (it is not yet clear which of them) may again begin to do something strange, for example, as was the case with PrivatBank.

The influence groups that are constantly trying to shatter the situation, received a signal: they can do whatever they want—money will still arrive.

Frankly speaking, this Cabinet of Ministers is not very competent and does not have serious political influence, and therefore will not be able to oppose them with anything.

And in the absence of borrowing, we will fall into a budget crisis, but more severe than now.

The point is also this: the state budget for 2021 is worse than the budget for 2020—this year's project was better. In this connection, we run the risk of finding ourselves in a budget crisis not at the end of the year, but in the middle or even in spring.

That, in turn, may have political consequences due to the Cabinet of Ministers inability to resolve such problems.