By KYIV. Dec 26 (Interfax-Ukraine) – The Ukrainian authorities have taken urgent measures to close the gap in financing the general government sector, which arose in the last few months of 2022 due to an increase in state budget spending by UAH 387 billion in mid-October, but the residual deficit is still estimated at UAH 67 billion (1 4% of GDP), according to the IMF documents to the Program Monitoring with Board Involvement (PMB).
"The residual general government financing gap is assessed at UAH 67 billion (1.4% of GDP). Unless further financing can be identified before the end of the year, this could result in the accumulation of arrears, with carryover implications for 2023 and beyond. Confirmation of the full picture of arrears is complicated by the limitations under martial law on the Ministry of Finance’s (Treasury’s) authority to collect data from all spending units in general government. The authorities are committed to restore the ministry’s authority to collect data, and to strengthen its ability to obtain data on arrears and monitor the financing gap – whose size is subject to considerable uncertainty. Progress on this front is essential to improve monitoring and prepare for future engagement with the fund. The authorities will re-assess in mid-December the likelihood of arrears emerging, and potential implications for subsequent years" the IMF said.
"The authorities will take measures to enhance payment discipline, which should allow to take better control over the operations of spending units, avoid delays in payments and arrears accumulation and prepare for steps to reduce the existing stock," the Ukrainian authorities said in the memorandum.
"In the near-term, authorities will also initiate legislative amendments to restore the ministry’s authority to collect information essential for certain categories of financial reporting. This will help establish oversight over budget arrears at both the state and local level, as well as social security funds, to have a clear view of the stock of arrears on a monthly basis, with a clear monitoring mechanism aimed at preventing the accumulation of new arrears," the report says.
"While mindful of martial law, the authorities are committed to take measures to settle the existing stock of such obligations in accordance with the requirements of budget legislation in a structured and transparent manner," it reads.
"The authorities are taking urgent steps to close a general government financing gap that has emerged in the last few months of 2022. A supplementary budget approved by parliament on October 18 increased spending by UAH 387 billion, mostly current expenditure. The authorities have already identified some measures to help close the resulting financing gap. Expenditure items have been identified, primarily in goods and services, that can be under-executed by postponing underlying contracts, totaling UAH145 billion (3.1% of GDP), while VAT refund claims are likely to be lower than previously estimated due to the impact of war on export sectors, increasing the net VAT by UAH 16 billion (0.3% of GDP)," the memo says.
"The authorities also plan to raise UAH 13 billion (0.3% of GDP) through additional domestic borrowing and will draw resources from the Treasury Single Account as well as liquidity in local accounts, together amounting to about UAH 120 billion (2.6% of GDP)," according to the document.
