OREANDA-NEWS. July 09, 2010. Ukraine’s Verkhovna Rada passed the changes to the 2010 state budget 2010, specifically reducing the budget deficit by 7% to UAH 54.1 bln (USD 6.8 bln, 5.1%) from UAH 57.7 bln. Accompanied by Naftogaz’ expected deficit of 1% of GDP, the changes bring the total deficit to ~6.1% of GDP in 2010, down from 7.4% in 2009. The amendment is one of the key requirements by the IMF for the new USD 14.9 bln stand-by facility, preliminarily agreed to last week.

Concorde Capital: the new law implies 5.3% smaller outlays (mostly those for investment projects) and 5.0% lower expected revenues (mainly, through a 11% lower estimate of VAT receipts). The amended law also suggests a more conservative expectation of privatization revenues of UAH 6.4 bln vs. UAH 10 bln previously; still counts on USD 2 bln of direct deficit financing from the IMF, which does not look very likely to us. Though we expect the government to not be able to achieve this target, the overall deficit should not exceed 6.5%-6.8% of GDP, in line with the IMF target of 6.5%. Together with state bank capitalization outlays of up to UAH 30 bln and VAT securitization through a special sovereign bonds issuance worth UAH 17.7 bln, we see total public debt reaching 43% of GDP as of end-2010.