Ukrainian govt improves 2024 inflation forecast to 9.7%, cuts estimate for required external financial assistance to $41 bln

MOSCOW. Nov 3 (Interfax) - The Ukrainian government has revised the forecast for the required volume of external financial assistance in its draft budget to about $41 billion for 2024 from the previous outlook of $42.9 billion, specifically owing to growth in planned revenues to the federal budget resulting from revising macroeconomic indicators and accounting for other additional earnings, Ukrainian media reported, citing the Finance Ministry's statement.

According to the Finance Ministry, the Cabinet of Ministers at a meeting on November 2 approved the bill "On the State Budget of Ukraine for 2024" in the second reading, rendering a number of amendments to it. The ministry clarified that by the second reading, the maximum volume of the federal budget deficit was reduced by UAH 22.1 billion to nearly UAH 1.572 trillion, which was agreed with the International Monetary Fund. The revenue portion increased compared to the first reading by UAH 22.2 billion to nearly UAH 1.769 trillion, including the general fund [taxes and fees are sent to this fund and basic expenses are financed from it] by UAH 22.1 billion. Meantime, expenses and loan provisions increased by UAH 95.2 billion to UAH 3.355 trillion, including expenses of the general fund of nearly UAH 3.121 trillion, and expenses of the special fund [monies of the fund have a designated purpose] of UAH 234.5 billion.

According to the press release, when approving the government's draft budget for the second reading, the government improved the inflation forecast for 2024 from 10.8% to 9.7%, and also adjusted the forecast for the average annual hryvnia/UAH exchange rate next year to UAH 40.70/$1 from the previously provided level of UAH 41.40/$1.

These changes are associated with the revision in the macro forecast for 2023. In particular, the GDP growth estimate was improved from 2.8% to 5%, the inflation forecast was reduced from 14.7% to 7.1%, the UAH exchange rate at the end of the year is expected to be UAH 38.60/$1 versus the previous UAH 40. 20/$1.

As noted, during the preparation of the federal draft budget for the second reading, a redistribution of funds was carried out as part of individual budget programs, particularly the ministries of social policy, education and science, and agrarian policy.

"The principles and priorities defined in the draft budget presented by the government for consideration by parliament in the first reading were preserved in the second reading. The budget indicators are balanced, but at the same time tense. We continue to work actively to attract the necessary external financing," Finance Minister Sergei Marchenko was quoted as saying in the statement.

As reported, after the Verkhovna Rada adjusted the parameters of the 2023 federal budget in October, and its expenses were approved at UAH 3.393 trillion (the general fund at about UAH 3 trillion), and income at about UAH 1.416 trillion (nearly UAH 1.254 trillion). The maximum deficit amount is set at just over UAH 2 trillion (nearly UAH 1.835 trillion).

It was also reported that the National Bank of Ukraine (NBU), which has been holding the official hryvnia exchange rate at UAH $36.5686/$1 since the end of July 2022, has switched to a flexible exchange rate regime as of October 3 this year.

At the end of October, the NBU for the third time this year significantly improved its macro forecast for the current year 2023. The bank now expects economic growth of 4.9%, with inflation decelerating to 5.8%. The NBU has improved its estimate for GDP growth slightly from 3.5% to 3.6% for next year, while regarding inflation it now expects a reversal of the trend and its acceleration to 9.5% against the previous forecast of 8.5%.

The official exchange rate as on November 3, 2023, is UAH 36.27/$1.