budget air locks – 2

in the previous article we talked about the fact that the budget revenues are going to be filled with virtual, if not frankly mythical, incomes. but they will still not be enough to finance very real expenses. at all times this issue was resolved simply - through ovgz. but the pandemic has made its own adjustments to our debt habits. if we don't make money on loans, we will have to cut the 2021 budget. and very soon ...

so, the volume of the deficit in the draft state budget for 2021 was reduced by 0.5% of gdp, or uah 23.72 billion. including the general fund by uah 24.55 billion, with an increase in the special fund deficit by uah 830.2 million. thus, it is proposed to determine the maximum volume of the state budget deficit in the amount of uah 246.64 billion, including uah 220.86 billion. on the general fund and uah 25.77 billion. for the special fund.

financing of the general fund of the state budget for debt operations in the revised version of the bill is proposed to be reduced by uah 30.55 billion. with an increase in external financing by uah 49.17 billion. and a decrease in domestic by uah 79.72 billion.

“the weighted average rate for domestic debt instruments was increased by 0.6 percentage points, which is explained by the deteriorating situation in the domestic market, for foreign debt instruments - it was reduced by 2.4 percentage points, which cost ”, - stated in the explanatory note to the updated version of the bill.

let's try to decipher what is meant here. the main figures are known. gdp is set at 4.5 trillion. uah the minimum wage is planned to be raised from january 1, 2021 to uah 6 thousand, from july 1 to uah 6.5 thousand. respectively, the cost of living will grow (in december 2021 - up to uah 2393) and the minimum pension (in december 2021 - up to uah 1934).

uah 324 billion will be spent on social protection of the population, which is uah 7.5 billion. more compared to expenses this year. for the development of road infrastructure 150 billion hryvnia is provided. and a little less - uah 120 billion. - to support small and medium-sized businesses. i very much doubt this figure. but life will show how dreams correspond to reality. it is planned that the average monthly salary will be uah 13.6 thousand, and consumer inflation will reach 7.3%. the average annual rate is set at uah 29.1. for the dollar.

this whole “feast during the plague” should cut off the source of financing of the state debt, which in relation to gdp will amount to 64.6%. and here we turn to our main topic: how to cover the deficit, reduced by uah 24 billion. and amounting to uah 246.35 billion?

an authoritative economist in academia, tatiana bogdan, in her recent article статье , described in detail how to plug the hole in the 2020 budget and what problems there are. these problems will no doubt worsen next year. some tedious figures and a few important quotes from her article to understand the essence of what is happening.

for ten months the state budget deficit reached uah 112 billion. and continues to grow. in october it amounted to uah 30.44 billion. at the same time, in october the state attracted domestic loans for uah 20.9 billion, and over 10 months - for almost uah 426.5 billion. (with the plan of uah 567.146 billion). paid almost uah 7 billion in october. debts, and for 10 months - 337.56 billion hryvnia, which is 13.4 billion hryvnia. below the plan.

in general, budget revenues for 10 months amounted to uah 842.437 billion. with a plan of 1.014 trillion, for the general fund - 720.46 billion uah. with the expected uah 722.096 billion. expenses amounted to uah 950.842 billion, for the general fund - uah 843.12 billion. in october, the state budget expenditures amounted to almost uah 107.6 billion, including the general fund - almost uah 92.47 billion.

in total, in january-september, the expenditures of the state budget of ukraine exceeded its revenues by almost uah 82 billion. while expenditures from the general fund of the state budget exceeded its revenues by uah 93.59 billion.

the expenditure side of the state budget for 10 months was not financed by 10.2%, and the amount of unspent expenditures reached uah 95.7 billion. (of which 34.4 billion are protected articles). this is to the question whether we are doing well with budget financing and payment of pensions. as you can see from the numbers, it's bad. but kept at the expense of ovgz.

as tatiana bogdan notes, the amount of placement of hryvnia ovgz for 10 months of 2020 (uah 151.7 billion) decreased by 25% compared to the same period of the previous year.

on a monthly basis, the smallest amounts of funds raised took place during quarantine in march-april and for some reason in september. although then there were no coronavirus restrictions. the economist explains that in september devaluation tendencies intensified in ukraine, and this suppressed the demand for all hryvnia instruments.

in other words, in the conditions of a noticeable decrease in inflation and the targeted policy of the ministry of finance to reduce interest rates, both nominal and real yields of ovgz decreased.

so, the real profitability in january-september 2020 fluctuated between 4% -6.5% per annum and, on average, was twice as low as in 2019. ask: why didn't the bondholders dump them all at once and run?

i think because they are practical people and did not seek to crash the market and create preconditions for a total default, which would have guaranteed to leave them without money. on the other hand, many are still getting the “fat” bond payments of yesteryear, when we had some of the highest rates in the world. finally, as bogdan explains, even under such circumstances, the profitability of ovgz in ukraine was still above the average in countries with similar credit ratings.

at the same time, the demand for new currency ovgs was predictably low due to their unattractive yield for speculators - 3.4% in dollars and 2.2% in euros. and this despite the fact that ukraine's foreign loan bonds at the beginning of the year were placed at rates of 7.25% in dollars and 4.38% in euros.

economists advise the government to return to raising rates again to sell more bonds in the face of the pandemic crisis. judging by the fact that the weighted average market yield of sovereign eurobonds of ukraine at the end of october was already 7.9% per annum, having increased by 2.1 percentage points relative to the beginning of the year, the government recognized the hopelessness of the situation and heeded such advice.

what can be added to the above? in order to finance the budget deficit, the treasury has to be sophisticated, attracting ogz buyers by returning to high interest rates. but the question arises: what to pay, taking into account ghostly income? only with money from new borrowings! the pyramid grows rapidly during the crisis and becomes even more precarious. and only the blind cannot see it.

it is not surprising that at the last november auctions the ministry of finance was able to raise several billion hryvnias only by raising rates on securities. the lowest demand was for three-year hryvnia bonds, although the highest interest was offered on them. this suggests that investors are nervous and distrustful of long-term loans.

will have to bite off a little and cover the deficit. how we will pay when part of the planned income turns out to be fake, i honestly do not know. apparently, no one knows for sure, and therefore the demand for "three-year plans" has fallen sharply. little time was measured by our creditors. but seriously, the conclusion is obvious: the money raised from the sale of ovgz is no longer enough to pay off the previous issues and finance the budget deficit - two in one. what to do? sequestration can correct. already next spring. without tightening ...

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