Week's balance: Rada passes Budget 2021, hryvnia strengthens, entrepreneurs rally

The Verkhovna Rada adopted the state budget for 2021 with a deficit of 5.5% of GDP, the hryvnia kept strengthening, while entrepreneurs continued their protest action against the introduction of a lockdown and tougher fiscalization – these are the key economic developments of the outgoing week.

The third week of December was marked by the passing of a new law on which the country's economic development will depend next year: the Verkhovna Rada approved the government-proposed bill on the state budget 2021 with a deficit of 5.5% of gross domestic product.

Reporting on the bill in parliament, Minister of Finance Serhiy Marchenko noted that the state budget draft was balanced and realistic.

"The budget is balanced, realistic, and we are clearly confident – both the Ministry of Finance and the government – that we will fulfill it, there is no doubt about that," the minister said.

"Budget revenues amounted to UHA 1.092 trillion, these are real funds that the state intends to receive next year without raising taxes or putting pressure on businesses. This is supported by detailed calculation," added Marchenko.

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Also, the finance chief said the expenditures were laid down at UAH 1.347 trillion, while the deficit was reduced between the first and second reading by UAH 23.7 billion, from 6% to 5.5% of GDP, amounting to UAH 246.6 billion.

"The sum is sufficient to finance all the priorities. Each hryvnia of our taxpayers will be used efficiently, for its intended purpose," Marchenko said.

The minister also said the parameters of the budget 2021 were in line with the estimates drawn by the International Monetary Fund's experts.

"We continue to move within the framework of cooperation with the IMF. In general, the parameters of the 2021 budget are in line with the estimates of the Fund's experts, which proves that we are moving in the right direction," concluded Marchenko.

Strengthening hryvnia

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In the outgoing week, the Ukrainian national currency continued to strengthen – slowly but surely. On Monday, the official exchange rate against the dollar stood at UAH 27.97, having beefed up by another 15 kopiykas, up to UAH 27.82, by the end of the week.

According to the chief economist with the Dragon Capital investment company, Olena Belan, the main reasons behind the short-term strengthening are the rising prices for domestic exports and revived demand on the part of non-residents for domestic government loan bonds.

"Since year-start, steel has risen in price by one and a half times, reaching almost $700 per tonne, the highest level since 2011, while prices for wheat and corn increased by 19% and 32%, respectively, due to lower harvests. At the same time, the attractiveness of government bonds for foreign investors has gone up, due to resumed cooperation with the IMF and higher yield, up to 10%-12%. Over the past two weeks, non-residents have expanded their portfolio of Ukraine's government bonds by more than $200 million following a nine-month period of continued investment decline," Belan said.

Roboforex analyst Andriy Hoilov believes that confidence on the part of international financial organizations toward Ukraine favorably influences the hryvnia's exchange rate against the euro and the dollar.

"The World Bank has agreed on providing assistance to Ukraine in the amount of $ 300 million. Thus, the markets receive confirmation of confidence in our country from international financial organizations, which has a favorable effect on the national currency's exchange rate against the euro and the dollar," he said.

Outraged entrepreneurs

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Last week, a pro-active part of Ukrainian entrepreneurs continued their protest rally in the capital demanding that the government give up on their plan to introduce a cash register mandate for all and allow then working during the upcoming lockdown scheduled for January 8-24.

Protesters first rallied in the e government quarter, including outside the Verkhovna Rada, before moving to the city's Maidan Square. For several days already, the activists have remained in the streets 24/7.

In order to partially calm the entrepreneurs' anger, the Verkhovna Rada adopted a new legislation that allows businessmen and employees, whose activities will be subject to a ban during the strict restrictions period in January, to file an application for government assistance in the amount of UAH 8,000.

Prime Minister Denys Shmyhal said that in the first 10 hours into the campaign launch, more than 5,000 entrepreneurs filed such applications, and by the end of the outgoing week, more than 200,000 Ukrainians had successfully applied for a one-time aid via the government-supported mobile app Diia.

This week, Ukraine ratified a major agreement on political cooperation, free trade, and strategic partnership with the United Kingdom. In the light of Brexit, it was extremely important for Kyiv to strike a deal with London on a new mode of bilateral cooperation.

Foreign Minister Dmytro Kuleba said the ratification would bring Ukraine's relations with the UK to a qualitatively new level.

"Optimal conditions will be created for free trade between our countries, which will facilitate the entry of Ukrainian companies with their goods to the UK market. Besides, due to this agreement, we will strengthen political partnership, transform it into a strategic partnership with Britain in countering Russian aggression targeting our country. We will introduce a new format of relations, which will ensure regular exchange and coordination of key international positions between London and Kyiv," the top diplomat said from a parliament rostrum.

The penultimate week of the outgoing year will see Catholic and Protestant celebrations of Christmas, as well as intensified preparations for the New Year, while the parliament will leave for holidays until mid-January and the State Statistics Service will publish data on the volume of GDP for three quarters of the outgoing year.

Bohdan Slutsky

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