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Sergii Marchenko: The State Budget 2023 is aimed at the Victory and Restoration of Ukraine

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21 September 2022

On September 21, 2022, at the Parliament session, Minister of Finance of Ukraine Sergii Marchenko presented the draft Law of Ukraine "On the State Budget of Ukraine for the year 2023".

Key points of Sergii Marchenko's speech:

The State Budget of Ukraine for 2023 is the budget that will bring us closer to Victory.

This budget was prepared under conditions of high degree of uncertainty. It takes into account the moderately conservative scenario of the macro-economic forecast, the influence of the military situation and external factors.

We understand that today Ukraine's future depends on our military.

Economy and Finance under Martial Law

Since February 24, Ukraine's economy has been operating under unprecedented challenges. The scale of destruction in Ukraine is extremely serious.

The fall in GDP was 15.1% in the first quarter, and 37.2% in the second quarter.

We accepted this challenge with dignity, and from the beginning of the full-scale invasion of the russian federation, we implemented measures for macro-economic stabilization and accumulation of financial resources for the defense of our state.

What we managed to do is the following:

  • Since the first days of the war, our Treasury, Tax Service, Customs Service, banking systems have been fully operational, and all necessary payments have been made;

  • To ensure proper systems operation all necessary measures were taken;

  • As part of negotiations with international partners, Ukraine has already received financial support of USD 19 billion, of which almost 50% are grant funds that do not need to be returned, so the debt burden does not increase. By the end of the year, we plan to attract about USD 17 billion of additional financing;

  • wartime bonds worth UAH 458 billion have been issued;

  • Saved about USD 6 billion. Due to the agreement reached with Ukraine's creditors regarding the suspension of debt payments until the end of 2024;

  • Revenues from taxes and fees have increased: if in April the budget received UAH 45 billion, then in August the revenues amounted to UAH 65 billion due to of the State Tax Service. During March, the State Customs Service directed only UAH 7 billion, and in August, due to the resumption of payment, the receipts increased in four times - to UAH 29 billion;

  • The Security and Defense sector has been fully financed;

  • All social expenses, pensions, salaries for teachers and doctors have been financed;

  • Provided support for forced migrants who have lost their jobs and homes;

  • Aid to IDPs was provided to cover living expenses in the amount of UAH 35 billion, 1 million people receive monthly payments;

  • Programs to support small and medium-sized businesses have been expanded, in particular, since the beginning of the war, as part of the 5-7-9 Program, loans in the amount of UAH 51 billion have been issued and almost 13,000 contracts have been concluded.

Global Consequences of the War

The consequences of the criminal actions of the russian federation in Ukraine are felt by the entire world.

First of all, it is a decrease in the growth rates of the world's economies.

1.1% a drop in the global economy. In particular, the economic growth of the United States is expected to slow to 2.3% this year, China to 3.3%.

In the EU, the economic growth forecast has been revised downward to 2.6% this year and 1.2% in 2023.

This year, China's GDP is expected to be the lowest in 30 years, caused by strict measures to fight the COVID-19 crisis.

A recession is forecasted for many developed countries, including the United Kingdom, Germany and Italy, and the countries of Eastern and Central Europe. According to some estimates, the risk of recession in the Eurozone for the next year has increased to 80%.

Secondly, a sharp increase in energy resource prices.

Third, rising food prices. Since the beginning of the war, the prices of basic food products have increased by up to 20%.

The number of people living below the poverty line is increasing, there is a threat of famine and humanitarian disaster.

Fourthly, record high inflation rates.

In June of this year, inflation in the USA reached a 9.1%, maximum over the last 40 years, the same situation was in the UK - 10.1%.

Inflation in the Eurozone in August reached a record - up to 9.1% (the highest annual rates were recorded in Estonia (25.2%), Latvia (21.4%) and Lithuania (21.1%)).

Bond yields in the developed countries of the world have increased.

The developing countries are on the verge of default. Lebanon, Sri Lanka, Suriname, and Zambia have already declared default.

As a consequence:

  • Political crises and resignations of the governments of many countries. Over the past 6 months, we have seen a change of government in the UK, Sweden, Italy, and Montenegro;

  • Establishment of maximum prices and state regulation of energy by European countries, in particular, a separate compensation package for the cost of energy resources has been prepared in the UK;

  • The EU is debating the issue of introducing a tax on excess profits, in particular for energy companies;

  • In the EU countries, it is planned to introduce a minimum income tax rate of 15% starting in 2023;

  • After the full-scale invasion of the russian federation on the territory of Ukraine, many states reviewed their military budgets.

In such conditions, it is difficult to constantly keep Ukraine in focus and search for resources to finance the budget.

Especially with the fact that the russian federation is doing better than expected under the sanctions. According to estimates, by the end of the year, the economy is forecast to fall by only 6% due to increased oil and gas supplies to other countries and adaptation to sanctions.

We can all see that restrictive measures are not enough! russia earns up to USD 1 billion daily from energy resources.

It is in such an environment that we are developing the budget for 2023. It is as objective as possible and takes into account the specified risks, has clearly defined priorities: strengthening the state's defense capability and social protection of citizens.

Revenues

The revenues of the general fund of the State Budget are drafted in the amount of UAH 1 trillion 146.6 billion, which is UAH 64.3 billion lower than the planned figure for 2022 and UAH 138 billion more than expected for this year.

The Ministry of Finance is a consistent supporter of the stability of tax rates during martial law. This is not the time to experiment. Therefore, the income is estimated taking into account the current taxation system.

Expenditures

Expenditures of the general fund of the State Budget are planned in the amount of UAH 2 trillion 268.5 billion, which is UAH 272.7 billion less than the planned figure for this year.

The first priority in the war country's budget is defense spending, which will account for almost half of all expenditures.

Expenditures on Security and Defense

In the draft budget for 2023, the total resource for national security and defense is UAH 1 trillion 141 billion, or 17.8% of GDP.

This is, in fact, the amount equal to the expenses that our country usually had in previous years.

Security and Defense

According to the general fund of the State Budget, funds in the amount of UAH 1 trillion 6 billion are planned to be directed to:

  • Financial support for military personnel - UAH 564 billion;

  • Creation, purchase and modernization of weapons and military equipment - almost UAH 300 billion;

  • Food - UAH 20.3 billion;

  • Construction (acquisition) of housing – UAH 1.8 billion.

Optimization of Expenses

In order to free up resources for the Security and Defense sector, it is planned to continue optimizing State Budget expenditures. It is planned to reduce by 10%, an additional 10% this year. In particular, a reduction of UAH 11.6 billion in expenses for the maintenance of government bodies is planned.

Pension and Social Security

Expenditures for social protection of the population are planned in the amount of UAH 403.4 billion.

The budget defines the following directions of social programs:

  • Financial support for the payment of pensions - UAH 233 billion. Pensions for 10.7 million Ukrainian pensioners will be provided on time and in full;  

  • Support of low-income families - UAH 73 billion, in particular, the provision of benefits and housing subsidies for housing and communal services - UAH 38 billion;

  • State social assistance to low-income families – UAH 15.5 billion;

  • Social protection of citizens caught in difficult life circumstances - UAH 66.6 billion, in particular provision of accommodation assistance to IDPs – UAH 57.6 billion;

  • Social protection of children and families - UAH 27.3 billion;

  • Social protection of persons and children with disabilities - UAH 3.7 billion.

Support of War Veterans

Funds in the amount of UAH 6.8 billion are planned to support war veterans.

The following areas of support are provided:

  • Providing housing for 2,843 people – UAH 5.5 billion;

  • Psychological assistance, professional adaptation, sanatorium-resort treatment, development of sports for veterans - UAH 540 million;

  • Payment of a one-time financial assistance in case of death or disability - UAH 325 million;

  • Functioning of the Ukrainian Veterans Fund - UAH 245 million;  

  • Creation of the National Military Memorial Cemetery - UAH 65 million.

Education

Education resources are planned in the amount of UAH 155 billion.

Expenses will be directed to:

  • Wages for teachers - UAH 87.5 billion;

  • UAH 1.5 billion for the arrangement of bomb shelters and safe conditions for students and teachers;

  • UAH 1 billion for the restoration of the school bus fleet.

In addition, funds are provided for inclusive education, publication and purchase of textbooks within the framework of the New Ukrainian School program; restoration of damaged and destroyed educational establishments, etc.

Health Protection

Health care expenditures in the amount of UAH 175.7 billion are taken into account in the draft budget.

In particular, resources are provided for next year for:

  • Ensuring the wages of medical workers is not below the guaranteed level;

  • Maintaining the quality of basic medical services;

  • Development of rehabilitation services and psychological support services.

Recovery Programs

The draft State Budget for 2023 foresees expenditures for the restoration of Ukraine, support of citizens and businesses:

  • The Fund for Overcoming the Consequences of Armed Aggression of the russian federation in the amount of more than UAH 19 billion was created to eliminate the consequences of hostilities and restore critical infrastructure and housing facilities;

  • A reserve fund in the amount of UAH 17.3 billion has been determined;

  • In order to further implement the state programs Mortgage 7%, Financial leasing, Affordable loans 5-7-9, and to support the agricultural sector and enterprises forced to relocate, UAH 16 billion have been allocated to the Business Development Fund;

  • UAH 1.37 billion are planned for business grants.

Local Budget Resource

The resource of local budgets for 2023 through the horizontal equalization mechanism has been determined in the amount of UAH 94.4 billion, in particular:

  • The basic grant is UAH 29 billion;

  • Personal Income Tax of the military (compensated at the expense of the State Budget) - UAH 57.7 billion;

  • Additional subsidy for transferred educational and health care institutions - UAH 2.9 billion;

  • Additional subsidy for compensation of losses of local budgets in connection with the military aggression of the russian federation - UAH 24 billion.

Financing of the De-occupied Territories

In order to restore the life of the de-occupied territories, the Government planned to allocate funds from the Fund for Overcoming the Consequences of Armed Aggression of the russian federation - no less than UAH 19 billion and to compensate for the losses of local budgets in connection with the war.

2023 State Budget Deficit

The state budget deficit in 2023 is expected to be 20% of GDP, including the general fund - 17.3% of GDP.

We hope to attract nearly USD 38 billion from our international partners, including the United States of America, the European Union, and the International Monetary Fund.

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The total amount of State Budget revenues is forecast to be UAH 1,279.1 billion (general fund – UAH 1,146.6 billion; special fund – UAH 132.5 billion).

State Budget expenditures and the provision of loans are planned in the amount of UAH 2,573.4 billion (general fund – UAH 2,268.5 billion, special fund – UAH 304.9 billion).

The budget deficit is predicted at the level of 20% of GDP, which is planned to be covered by state borrowings in the amount of UAH 1,686.8 billion (general fund – UAH 1,516.8 billion, special fund – UAH 170.0 billion), of which to repay the state debt – UAH 415.0 billion.  

Next, members of Parliament of Ukraine and specialized committees should formulate proposals for the draft 2023 State Budget and submit them to the Budget Committee of the Parliament of Ukraine.  

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