The National Bank of Ukraine in its August inflation report worsened its forecast for the country’s 2024 consolidated budget deficit including grants to UAH 1,281 billion, or 16.8% of GDP, down from UAH 811 billion, or 10.5% of GDP, in its April report.
“Deficits are expected to be higher than in the previous forecast, primarily due to the longer duration of security risks, and therefore the need for significant spending on the security and defense sector. Taking this into account, the amount of expected international assistance to finance other expenditures has been increased,” the NBU points out.
In the new report, the forecast of the consolidated budget deficit including grants in 2025 is raised to UAH 883 billion, or 10.0% of GDP, up from UAH 577 billion, or 6.5% of GDP in the April report.
Last year, as the NBU recalled, the deficit of the consolidated budget including grants amounted to UAH 845 billion, or 16.3% of GDP. In the second quarter of this year, it widened to more than UAH 233 billion, and excluding grants in revenue – to UAH 369 billion, or more than 24% of GDP.
“In 2023, the budget deficit excluding grants in revenue is expected to be at the level of the previous year – more than 26.3% of GDP. In the future, due to the increase in revenues, it will narrow to almost 20% of GDP in 2024 and 12% of GDP in 2025 excluding revenue grants,” the National Bank summarized.
It specified that it expects grants to decline from 9.3% of GDP last year to 6.5% of GDP this year, 2.9% of GDP next year and 1.8% of GDP in 2025.
“Given the significant budget deficits for several consecutive years and their financing mainly by debt, as well as the reduction of grant support in the medium term, the debt will approach 100% of GDP,” the National Bank said. It explained that it increased the debt-to-GDP ratio in this forecast compared to the previous one due to the revision of assumptions about the size of deficits upward and grant support downward in 2024-2025.
In particular, the NBU expects government debt to rise from 78.4% of GDP to 84.6% of GDP this year, to 96.6% of GDP next year and to 98.2% of GDP in 2025.
“At the same time, such a high level of debt will have a relatively moderate pressure on the budget in the coming years, primarily due to the receipt of loan funds on preferential terms – at low rates and with a deferred schedule of principal payments,” the NBU believes.
