The funding of the national budget of Ukraine for 2013 adopted by the Verkhovna Rada on November 6 carries significant risks and depends on the country's cooperation with the International Monetary Fund (IMF), experts polled by Interfax-Ukraine have said.
According to the head of the analytical department of Investment Capital Ukraine (ICU), Oleksandr Valchishen, the deficit exceeding UAH 50 billion foreseen in the budget is excessive in terms of the government’s creditworthiness.
“A law with such a deficit is a problem in terms of funding,” said the expert.
He said that financial markets, as well as the major investors and lenders of Ukraine, including the IMF, would positively respond to a maximum deficit of UAH 35 billion, with which the so-called primary budget balance is equal to zero. However, the ideal situation would be the adoption of a balanced budget, in which the primary balance would include a surplus of UAH 35 billion, he said.
The expert added that with such a budget, serious expenditures (both in the form of borrowings and the sum of the principal debt) would begin before the start of 2013: the worst expectations of investors and creditors about the unbalanced fiscal policy are being justified, interest rates will be high and the debt burden will be growing.
The head of the analytical department of Concorde Capital, Oleksandr Paraschiy, also said that the IMF would not like the budget.
“The document does not foresee an increase in tariffs for gas and utilities. In addition, the consolidated budget deficit of 4.5% of GDP (including the financing of Naftogaz Ukrainy) will also cause complaints from the side of the IMF. Therefore, with such budgetary parameters it is very difficult to expect cooperation renewal,” he said.
VTB Capital Economist Dmytro Fedotkin forecast that the budget fulfillment next year in any case would be very tight, considering total expenses for the debt servicing, both internal and external, as well as the funding of the budget deficit.
He also noted that it is planned to raise a significant part of the budget funding on foreign markets, where the situation remains volatile. Theoretically, this could lead to the increase in the cost of borrowings, the reduction or a temporary lack of such possibilities, the expert believes.
Fedotkin added that the alternative to conventional funding sources in this case is privatization, as well as the issue of bonds and other investment instruments for the public. Ukraine in recent years has successfully used these alternatives: initially privatization and this year the placement of eurobonds for the public, and both options keep a significant potential, the expert said.
However, he said the IMF loans could also be an important source of external financing.
According to the head of the analytical department at Art Capital investment company, Ihor Putilin, in addition to the bond issue, Ukraine can also raise loans from other international financial institutions, as it, for instance, previously attracted $2 billion from Russia’s VTB.
At the same time, he noted that the resumption of cooperation with the IMF would be a major factor in increasing the investment rating of Ukraine and, consequently, would reduce the risk of underfunding.
“It would become a positive signal to other private and state financial institutions that can renew or increase lending to the country,” said Putilin.
