At a meeting on November 9, the Verkhovna Rada approved in the second reading the draft state budget for 2024 (bill No. 10000). Compared to the original edition, the country's main financial document has changed insignificantly.
Speaking in parliament, Finance Minister Sergei Marchenko said that the 2024 state budget was based on the following priorities: strengthening defense capability, protecting the population, supporting veterans, raising social standards and economic recovery.
The lion's share of expenses, as in 2023, will be directed to the protection and defense of Ukraine. Deputies managed to increase the revenue plan for the second reading, but it is still not enough to cover all budget needs. Therefore, the deficit will remain significant and exceed 20% of GDP, and will again have to be compensated by foreign financing.
The economic growth forecast for 2024 was also slightly adjusted (downward) and the hryvnia exchange rate forecast (strengthening).
figured out what kind of state budget Ukraine will live with in 2024.
*Since the final version of the budget has not yet been signed by the president and not published, in our analysis we will proceed from the draft state budget , which was submitted for the second reading, as well as from data from the Ministry of Finance and the Rada Budget Committee.
Main indicators of the state budget 2024. State budget expenditures for 2024 will amount to UAH 3.36 trillion. This is almost the same as in 2023. Revenues will reach UAH 1.77 trillion, which is 25% more than budgeted for 2023. Compared to the first reading, revenues were increased by UAH 22 billion.
According to the head of the budget committee, Roksolana Pidlasa, the revenue plan was adjusted mainly due to VAT on imports, bank profit tax (the Rada supported bill No. 9656-d on increasing the profit tax for banks from 18% to 36% in the first reading), due to import duties and rents.
The state budget deficit in 2024 will amount to UAH 1.57 trillion or 20.5% of GDP. In 2023, the deficit will reach 29%.
What will the budget money be spent on? As mentioned above, the cost base in 2024 will be in the defense and security sector. He will receive UAH 1.69 trillion, which is 22.1% of GDP. As Sergei Marchenko clarified, an increase in funding is provided for the development of the military-industrial complex. UAH 51 billion will be allocated for the production of weapons, and UAH 43.3 billion for the production of drones.
Moreover, financing of defense needs will be covered exclusively by internal revenues: taxes, customs duties, dividends from state-owned companies, privatization and funds received from the placement of government bonds.
Costs for some other purposes will be as follows (data provided by the Ministry of Finance):
UAH 469.4 billion – social programs and protection of citizens; UAH 14.3 billion – support for war veterans; UAH 203.4 billion – healthcare; UAH 179.1 billion – education; UAH 10.2 billion – culture and media; UAH 7.6 billion – sports; UAH 2.5 billion – digital transformation; UAH 13.6 billion – science; UAH 30.9 billion – business support.
How will the state budget be financed ? Tax revenues in 2024 will amount to UAH 1.57 trillion. This is 32% more than the state budget should receive from taxes at the end of 2023. Compared to the first reading, the amount of tax revenue was increased by 2.3%.
Borrowing will bring the state budget about UAH 2.13 trillion in 2024. Of this amount, UAH 526 billion are domestic loans (from the placement of government bonds), and slightly more than UAH 1.6 trillion are external financing.
According to the first deputy head of the Rada Tax Committee, Yaroslav Zheleznyak, by the second reading the need for foreign funds was reduced by $1.9 billion.
“This volume (of external borrowings — ed.) was reduced thanks to the revision of income and rebalancing of financing indicators based on the results of negotiations with the IMF,” the Ministry of Finance for its part clarified.
However, in 2024, about $41 billion will still need to be found somewhere to cover non-security and defense spending.. This is almost the same amount as its partners will allocate to Ukraine in 2023.
By the way, a considerable amount will also be required to repay the national debt and service it in 2024 — about UAH 1.05 trillion.
Key macro indicators and social standards. The GDP growth forecast, which is included in the state budget for 2024, is 4.6%. This is by 0.4 p.p.. worse than the version that was submitted for the first reading. The National Bank, we recall, expects GDP growth in 2024 to be no more than 3.6%.
The inflation estimate for 2024 was improved from 10.8% to 9.7% (NBU forecast – 9.8%). Exports of goods and services will increase by 9% compared to 2023 (NBU predicts export growth by 5.6%).
Read also: War until the end of 2024 and 10% inflation: NBU released a new inflation report with macro forecasts
The average annual exchange rate included in the 2024 state budget has been improved from 41.4 UAH/USD to 40.7 UAH/USD.
Read also: Dollar at 40 hryvnia – by the end of the year? How will the foreign exchange market react to the abandonment of the fixed exchange rate?
The cost of living from January 1, 2024 will be UAH 2,920, which is 13% more than in 2023. The average monthly salary in 2024 will increase by 18% to UAH 21,800. The minimum wage will also increase: from the current 6,700 UAH to 7,100 UAH from January 1, 2024, and then to 8,000 UAH from April 1, 2024.
What was the final state budget for 2024? There were no special revelations. Almost all efforts and resources will be refocused on the needs of the army, the military-industrial complex and other issues related to national security.
At the same time, the economy will show growth for the second year in a row.. Of course, if you believe the forecasts included in the state budget by the Ministry of Finance and the Ministry of Economy. But this growth will not be enough to return the state budget deficit to the “pre-war” level of 3-5% of GDP.
Therefore, Ukraine still remains dependent on the generosity and solvency of external partners. And it’s far from a fact that we will be able to get the $41 billion that we need to cover the deficit.. The NBU believes that Ukraine can count on no more than $38.5 billion in 2024.
This will lead to a growing emphasis on mobilizing domestic resources. For example, it was clearly not in vain that by the second reading of the state budget, deputies increased the plan for internal borrowing through government bonds by UAH 81 billion. It is no coincidence that the government and the Rada are trying to squeeze the maximum out of taxpayers. This is precisely what is associated with a significant revision of the plan for individual taxes (income tax, VAT, rental payments), as well as manipulations with the redistribution of personal income tax from local budgets.
As Roksolana Pidlasa said, in 2024 every Ukrainian hryvnia “will go to defend the state”. And this is probably the most accurate description of the adopted budget.
Approximate structure of the state budget in 2024
Item of income/expenses, billion UAH State Budget 2024 (draft for 2nd reading) State Budget 2023 (as amended on October 6, 2023) Change, year to year Total costs, including: 3355 3393 -1.1 Ministry of Defense 1164 1443 -19.3 Armed Forces of Ukraine 882 1056 -16.5 National Guard 104 137 -24.1 Ministry of Internal Affairs 324 388 -16.5 State Intelligence Service 18.1 18.7 -3.2 Security Service of Ukraine 35 36 -2.8 Ministry of Veterans Affairs 4 1.3 207.7 Ministry of Health 199 176 13.1 Ministry of Education education 61 53.1 14.9 Ministry of Social Policy, incl. : 470 463 1.5 Pension Fund 322 274 17.5 Ministry of Infrastructure 3.5 3.7 -5.4 Ministry of Digital Development 2.5 0.6 316.7 Ministry of Strategic Industry 51 12.2 318 Ministry of Economy 33.2 4.5 637.8 Bureau of Economic Security 1.35 0.8 68.8 National Anti-Corruption National Bureau 1.9 1.3 46.2 State Tax Service 12.1 8.7 39.1 State Customs Service 7.3 5.6 30.4 Total income, including: 1769 1416 24.9 Tax revenues, including: 1574 1196 31.6 Personal income tax 300 180 66.7 Income tax 184 111 65.8 Rent payments 58 97 -40.2 Internal taxes on goods and services 982 767 28 Taxes for international trade 49 38 28.9 Privatization 4 6 -33.3 Borrowings, including: Internal 526 570 -7.7 External 1668 1889 -11.7