Parliament passes 2016 national budget

The Ukrainian parliament at night on Friday with 263 supporting votes passed a bill on the national budget for 2016.

"The deficit is 3.7% of GDP within the benchmark of the International Monetary Fund (IMF) compared to 4.1% of GDP in 2015," Finance Minister of Ukraine Natalie Jaresko said presenting the document.

Revenue of the budget are 15.1% or UAH 88.1 billion more than in the 2015 national budget, being UAH 595.1 billion.

According to the bill, the upper deficit is set at UAH 83.69 billion, which is 10.2% up compared to the 2015 budget, although in January-October the surplus of UAH 2.77 billion was recorded.

The minister said that expenses and provision of loans are increased compared to the 2015 budget by 14.5% or UAH 86.7 billion, to UAH 684.5 billion, including expenses of UAH 667.73 billion.

According to the document, revenue of the general fund is UAH 562.73 billion and expenditure is UAH 633.51 billion,

The Finance Ministry said that the budget was passed on the basis of projected GDP growth of 2%, its nominal value of UAH 2.262 trillion and average annual hryvnia exchange rate of UAH 24.10/$1.

The upper limit for direct state debt as of late 2016 will be UAH 1.501, guaranteed debt – UAH 444.78 billion, while the 2015 national budget contains only the upper limit for direct state debt – UAH 1.394 trillion, and as of late September the total state debt was UAH 1.52 trillion.

The ministry said that the upper limit towards GDP was set at 86% of GDP.

Jaresko said that the 2016 national budget includes the increase of the minimum wage and subsistence wage in two stages – from May 1 by 5% and from December 1 by 7%, and in general – by 12.5%, which equals the projected inflation indicator.

It is planned to increase the subsistence wage from current UAH 1,330 a month to UAH 1,399 from May 1 and UAH 1,469 from December 1, and the minimum wage – from UAH 1,378 a month to UAH 1,450 from May 1 and UAH 1,550 from December 1.

Jaresko said that UAH 113.6 billion or 5% of GDP is provided for defense and security next year, as the National Security and Defense Council demanded.

State guarantees could be increased to UAH 28.2 billion from UAH 25 billion this year and these loans could be sent to finance investment projects, the State Mortgage Institution (SMI) and increase the country's defense.

The document also contains the permit for the Cabinet of Ministers to form the stabilization energy fund of $700 million thanks to state guarantees, including purchases of gas by Naftogaz Ukrainy in Europe, while the 2015 budget permitted the government to create the fund of $1 billion.

Revenue from the National Bank of Ukraine (NBU) would fall to UAH 38 billion from UAH 60.5 billion this year, and the financing of the Individuals' Deposit Guarantee via the issue of government bonds will decrease from UAH 20 billion to UAH 16 billion. The bill contains a provision that if the NBU gives consent, its portfolio of government bonds could be restructured, although the document does not provide concrete parameters. The similar provision in the 2015 budget, foreseeing the exchange of government domestic loan bonds held by the NBU for new government bonds with the maturity term of up to 20 years and 5% coupon, did not work.

The 2016 national budget retains the possibility of additional capitalization of banks and Naftogaz Ukrainy via the issue of government bonds, not specifying the sums (UAH 36.5 billion and UAH 29.7 billion respectively).

The document permits the Finance Ministry to continue transactions on exchange of foreign state liabilities, although this concerns the finalization of the debt transaction of 2015.

Additionally, Kyiv city is again permitted to extend payment of 2012 debt for more than one year to settle the debt on bills to refund the difference in the heating tariffs.

The document proposes that articles of some laws on benefits are suspended and the Cabinet is to approve a special procedure for indexation of public income within the financial resources of budgets of all levels and the social insurance fund.

The permit for the Cabinet of Ministers to restructure the debt of UAH 7.64 billion as of January 1, 2016 under court rulings was moved from the 2015 budget.

When the document was discussed by the budget committee, expenses of Interior Ministry were increased by UAH 125 million, while expenses of the Defense Ministry were cut by UAH 100 million and the festival of Ukrainian song "Be Free!" worth UAH 25 billion was canceled, expenses of the Culture Ministry were increased by UAH 40 million and UAH 200 million were provided to buy mammographers and ultrasound scanners.