In September, Ukraine’s central budget incurred a deficit of $3.6 bn (excluding a $1.25 bn US grant), a bit higher than the August figure of $3.34 bn and in line with the $3.64bn average monthly budget deficit (net of grants) for 2023.

Accounting for debt redemptions totalling $1.68 bn ($0.54 bn in foreign currency and $1.14 bn in domestic currency), the total funding needs for the month stood at $5.26 bn, an increase from August's $5.0 bn and closely aligned with the IMF's recommended monthly fiscal requirement of $5.0 bn.

The September deficit was covered through borrowings, including $1.69 bn in external loans and over $1 bn raised via local bond issuances ($1 bn in UAH-denominated domestic government bonds with an average yield of 19.2% and $10.5 m in foreign-denominated bonds with average yields of 4.8% for $and 3.25% for Eurobonds).

Total tax and non-tax revenues reached $2.68 bn in September, marking a 17% y/y increase. Tax revenues experienced a 15% y/y growth, driven by an increase in Personal Income Tax (PIT) collections due to higher earnings from military personnel. Corporate income tax revenues more than doubled y/y, reflecting increased business activity and the recovery of businesses in September 2023 compared to the same period in 2022. Other contributing factors included higher revenue from "import" VAT due to the removal of specific tax incentives, increased import volumes, and inflation-driven price hikes on imported goods.

Total expenditures for September amounted to about $6.28 bn, a 2% y/y decrease. Major areas of spending included military expenditures at approximately $3.3 bn (52.5% of total expenditures and -15% y/y), social spending at $0.98 bn (a 4% y/y increase), and debt servicing at $0.34 bn (a 300% y/y increase).

For January-September 2023, the state budget deficit totalled $22.8 bn ($33 bn net of grants), up from $13.53 bn in the same period in 2022. The higher deficit is primarily associated with a significantly increased need for funding defence expenditures of $31.9 bn in 9M23 (+48% y/y) due to an expanded military presence, higher wages for soldiers serving on the front lines, and increased military procurement.

The total deficit for 2023 is planned at $50 bn (after the last budget amendments in August), but we believe the final number will be much better (around $30-35 bn), primarily due to receiving a large portion in financial assistance as grants (around $9.96 bn as of September).

1123 Ukraine macro budget 9m23 KSE

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.

A fuller analysis of Ukraine’s budget needs was published in the October issue of the Budget Barometer.