The Ukrainian Cabinet needs to cut spending to get the 2016 budget back in line with the requirements of the country`s international lenders, as delayed privatization and a weak economic recovery prevent revenue from keeping pace with costs, Finance Minister Oleksandr Danylyuk said, according to Bloomberg.
”We had an unrealistic budget for 2016,” Danylyuk, who replaced Natalie Jaresko as finance chief in April, said in an interview in London Saturday. He declined to specify what areas may be targeted for budget cuts. ”There are huge fiscal risks and I`m working every day to reduce them,” he said, Bloomberg reports.
Amid fighting in Donbas, Ukraine has struggled to keep its aid program on track, with delayed reforms and a lack of progress in tackling corruption freezing IMF aid payments. The country faces the tough task of overhauling industries that have seen little modernization in the 25 years since the fall of communism while also trying to pull itself out of recession. According to the Economy Ministry, gross domestic product will expand by 1% this year.
The government is also trying to keep its budget deficit from surpassing the target of 3.7% of GDP agreed with he IMF last year. Ukraine`s fiscal deficit widened to almost UAH 50 billion ($1.9 billion) in the first seven months of the year, compared with UAH 2.3 billion a year earlier, according to the Finance Ministry. While revenue rose 4.6% in January-July on an annual basis, spending jumped 21%.
Danylyuk is seeking to speed up the sales of state assets to attract investment. Privatization is ”a must strategically,” he said, adding that Ukraine wants to sell ammonia maker Odesa Portside Chemical Plant in November after an earlier attempt failed in July when bidders spurned what he called an ”unrealistic” price set by the government. The divestment program, in the works since 2014, has yet to complete a single transaction.
Because of the delays, total revenue from state-asset sales will miss the government`s target of UAH 17 billion this year. The government will use the same amount as the target for asset disposals in 2017, Danylyuk said.
That spending plan assumes a deficit of 3% of GDP next year. It projects inflation of 8.1%, compared with 12% seen for this year, and 3% economic growth, from 1.5% in 2016, he said. The government plans to cut the fiscal shortfall to 2% of GDP by 2019.
Ukraine is facing ”not so much economic risks, but there are still some risks to security,” Danylyuk said, referring to the continued fighting between government troops and Russian-backed militants in Donbas. ”Any action in the east sends a very bad signal to investors.”
”To restore the relationship with the IMF, to renew external financing — that was a priority for me and I can put a tick mark there,” he said. ”The next priority is to put in a foundation for irreversible reforms for next year. That`s what takes up all of my time.”