In the first quarter 2024, Ukraine received minimal military assistance from its partners, which put an additional burden on the budget through additional domestic spending on military needs.

External funding covered only about 10% of the planned needs. This was offset by several factors: shifting year-end expenditures from military salaries to the necessary purchase of weapons at the beginning of the year, introducing a higher tax on the banking system, redirecting personal income tax from military personnel from local budgets to the state budget, and moving the payment of dividends of state-owned companies and part of their net profit from mid-year to early in the year. The National Bank of Ukraine (NBU) also performed better, transferring more funds to the budget than planned.

The budget deficit amounted to $5.2 bn in the first quarter 2024, compared to $6.0 bn in the first quarter 2023. Despite a significantly lower amount of grants received in the first quarter 2024 - $0.9 bn compared to $3.7 bn in the first quarter 2023 - the government managed to execute the budget in the first quarter 2024 with a 13.3 p.р. lower deficit than in the first quarter 2023.

Revenues (excluding grants) increased sharply in the first quarter 2024 compared to the same period of the previous year – by $5.2 bn or 48.5% y-о-y. Tax revenues rose by 54.7% on the back of the economy’s adjustment to the war, changes to the tax code, and effects from inflation. The fact that the main taxes (VAT, excise duties, income tax) overshot their targets indicates that economic processes are reviving - most counterparties are paying taxes and increasing their payments compared to last year. However, it is difficult to say that this will continue until the end of the year, given the risks to energy security and pressure on the labor market due to mobilization.

Expenditures soared by 7.6% y-о-y to $22 bn, with military spending accounting for $11.1 bn alone. The largest growth is observed in the sectors of public order, security, and judiciary - by 50% (or up to $3.7  bn) and in the sector of state functions (mainly incl. debt servicing) - by 64.4% (or up to $1.5  bn). At the same time, a slight decrease occurred in the sectors of social protection and social security - by 7.8% (falling to $3 bn) and in interbudgetary transfers - by 10.8% (falling to $0.9  bn).

State debt increased to $143.1 bn, reflecting a rise of $32.5 bn, or 29.4%, from the end of the first quarter 2023. Significant changes occurred in the debt structure. New external debt amounted to $30.7 bn, or 29.4% more than in the first quarter 2023, bringing the total external debt to $101.9 bn. In addition, new domestic debt increased by $1.7 bn, or 4.4%, reaching a total of $41.3 bn. State guaranteed debt in the first quarter 2024 compared to the first quarter 2023 decreased by 14.5% or $1.4 bn to $8 bn, including by 10% to $1.7 bn for domestic and by 15.7% to $6.2 bn for external.

Read the full report here.

 

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The Kyiv School of Economics (KSE) is a bne IntelliNews media partner and a leading source of economic analysis and information on Ukraine. This content originally appeared on the KSE website.