Macroeconomic Briefs

Government targets Hr 47 billion budget deficit
The government submitted to parliament its state budget draft for 2010, targeting revenues of Hr 285 billion and a deficit of Hr 47 billion (almost 4 percent of gross domestic product), which is lower than a gap of Hr 52 billion, or 5.5 percent of GDP, expected this year. Additionally, the document envisages Hr 104-120 billion of domestic and Hr 15.5 billion ($2.0 billion) of external borrowings next year. Acting Finance Minister Ihor Umansky said the planned borrowings would be used to cover the projected budget deficit, finance bank recapitalization, strengthen the state Deposit Guarantee Fund and “provide financial assistance to commercial banks.” The announced debt raising target looks too high given relatively modest debt repayments of Hr 15 billion the Ukrainian government will face next year as well expected bank recapitalization costs of Hr 20 billion. The government’s aggressive borrowing policies will likely give parliamentary opposition an additional excuse to block approval of the budget. But even apart from that, pushing the document through parliament amid a presidential election campaign is set to become an extremely strenuous task for the government.

Merchandise trade deficit widens in July

Ukraine’s merchandise trade deficit widened to $0.7 billion in July from $0.2 billion in June, bringing the January-July trade gap to $3.1 billion. July exports stood at $3.2 billion, up 6 percent compared to June but down 58 percent from July 2008, with the steel and chemical industries remaining the largest contributors to total export revenues. Imports jumped by 22 percent compared to June to $3.9 billion (down 56 percent from July 2008), as purchases of Russian gas doubled to $0.6 billion over the period.

Delay of next IMF loan tranche likely

The International Monetary Fund published a set of documents prepared during its previous review of its $17 billion lending program for Ukraine, including a list of actions local authorities will have to implement by the end of September to qualify for the next loan tranche of $3.8 billion. Apart from meeting the traditional performance criteria, such as targets for National Bank reserves and budget deficit, the authorities are required to take legislative measures to strengthen the NBU’s independence and improve the financial situation of Naftogaz Ukraine as well as continue with banking sector recapitalization. In particular, the IMF’s requirements in this respect include reforming the NBU council, revising the law on the NBU, abolishing the 0.2 percent foreign exchange tax set by the budget law as well as revoking the ban to penalize households that fail to pay their utility bills. As most of the above actions require active involvement on the part of parliament, which currently remains paralyzed, it is unlikely Ukraine will manage to comply with the Fund’s requirements by the end of the month.

New car sales up 9 percent

Sales of new cars in Ukraine stood at 14,439 vehicles in August, rising 9 percent compared to July but remaining down a staggering 72 percent compared to the same period a year ago. In January-August Ukrainians bought 110,230 new cars, down 74 percent year-on-year. Last month’s slight pick-up in car sales was likely triggered by a slump in the hryvnia exchange rate over the period, which pushed some consumers to quicker dispose of their savings. Russian VAZ (Lada) models accounted for 20 percent of January-August car sales, followed by Hyundai (8 percent), Chevrolet (6 percent), Toyota (6 percent), ZAZ (5.5 percent), Chery (5 percent) and Skoda (4 percent).

Ukraine exports 4.3 million tons of grain
Ukraine exported 2.3 million tons (Mt) of grain in August, bringing its total grain exports in the marketing year 2009/2010 that began in July to 4.3 Mt (up 12 percent year-on-year). The country exported 2 Mt of wheat, 1.8 Mt of barley and 0.4 Mt of corn over the period. The Agriculture Ministry expects Ukrainian grain exports to decline by 22 percent to 18 Mt in 2009/2010 due to a lower grain harvest expected this year.