Today, November 3, 2022, the Parliament of Ukraine approved the draft Law of Ukraine On the State Budget of Ukraine for the year 2023 in the second reading and as a whole.

"Following the results of the meetings with our international partners, consideration of conclusions and proposals to the draft State Budget for 2023 submitted by the Parliament of Ukraine, following the coordination meetings and consultations, the Government has prepared the draft State Budget for the second reading.

We were looking jointly for a solution to strengthen international support in the coming year, not only to solve urgent problems related to the reconstruction of critical infrastructure and social support of citizens but also raised the issue of further recovery of the country", noted the Minister of Finance of Ukraine Sergii Marchenko during his speech in Parliament.

In general, about 60% of the amendments and proposals of the Members of Parliament were taken into account during the finalization of the draft budget.

"The timely adoption of the main financial document of the country allows us to continue the dialogue with our international partners regarding the sources of financing the deficit and supporting Ukraine in the fight against the armed aggression of russia", Sergii Marchenko emphasized and thanked the Members of Parliament for their constructive work in the committees of the Parliament, for their cooperation with the Government and the Ministry of Finance of Ukraine.

The main points from Sergii Marchenko's speech during the presentation of the State Budget for 2023 before the second reading:

Macro indicators

The forecast of real GDP growth in 2023 has been adjusted for more conservative assumptions about the pace of economic recovery (compared to the previous forecast).

High security risks and risks associated with the continuation of russian attacks on energy system facilities and other critical infrastructure facilities of Ukraine were also taken into account.

The real GDP growth is projected at 3.2% instead of the previous forecast of 4.6%.

The inflation forecast in 2023 has been reduced from 30% to 28% (estimated from December to December).

The nominal GDP forecast for 2023 was adjusted by UAH 120 billion to UAH 6,280 billion.

More optimistic expectations regarding financial support from international partners led to the adjustment of the assumption regarding the exchange rate of the UAH to the USD.

By the end of the year, it is projected at UAH 45.8 per USD (instead of UAH 50 per USD in the previous forecast). The assumption regarding the average annual value of the exchange rate remained unchanged (UAH 42.2 per USD).

Revenues

Revenues of the State Budget 2023 are foreseen in the amount of UAH 1,330 billion, including revenues of the general fund of UAH 1,173 billion and revenues of the special fund - UAH 156 billion.

Revenues are proposed to be increased by UAH 50 billion compared to the first reading, including UAH 26 billion from the general fund, and UAH 24 billion from the special fund.

The key factors that influenced the revision of the revenue forecast to the second reading are:

- proposals given in the Budget Conclusions of the Parliament of Ukraine;

- legal provisions regarding amendments to the Tax Code of Ukraine on the fuel excise tax rates,

- adjusted macro indicators.

An increase of revenues of the general fund of the State Budget is provided by:

• the tax and fee on the income of individuals in the amount of UAH 15 billion (due to the revision of macro indicators and improvement of approaches in the forecasting of personal income taxes);
• VAT on imported goods for UAH 27 billion (due to the increase in fuel tax rates from 7% to 20%);
• funds transferred by the NBU in the amount of UAH 35.5 billion (taking into account the updated information on the amount of revenues provided by the National Bank).

At the same time, the following revenues of the general fund of the State Budget are planned to decrease:

• income tax by UAH 21 billion (due to a decrease in the profit of profitable enterprises);
• rent payments for natural gas extraction by UAH 23 billion (due to changes in the way the tax base is calculated in the natural gas taxation);
• VAT on goods produced in Ukraine, taking into account budget compensation of UAH 6 billion (due to changes in macro indicators and reduction in consumer spending).

The special fund provides for an increase in:

• excise tax on fuel of UAH 7 billion (due to the return of pre-war tax rates);
• funds transferred by the NBU of UAH16 billion ;
• grants of UAH 442 million (under international support programs for the Ministry of Health and the Ministry of Reintegration).

Deficit

Finalizing the draft State Budget for the second reading, the deficit was increased by UAH 17 billion (up to 20.6% of GDP).

The deficit is planned to be financed by increasing external borrowings. Accordingly, the volume of state debt will increase by this amount.

As a result, the forecast volume of the state debt equivalent in national currency is predicted to be UAH 6,423 billion in absolute terms.

Expenses

State Budget expenditures for the second reading were increased by UAH 67 billion compared to the first reading. They will amount to UAH 2,640 billion, including the general fund of UAH 2,312 billion and the special fund of UAH 328 billion.

The expenses on national security and defense has not changed compared to the first reading and makes up about 50% of the entire state budget expenses. This is UAH 1,141 billion or 18.2% of GDP (the general fund is UAH 1,006 billion, special fund - UAH 115 billion, state guarantees - up to UAH 20 billion).

In order to solve social and economic  issues, an increase in State Budget expenditures is foreseen, in particular for:

• payment of pensions - by UAH 39 billion (up to UAH 272 billion);
• Fund for Liquidation of the Consequences of Armed Aggression - for UAH 16 billion (up to UAH 35.5 billion). The areas of directing the funds are the following:

- construction and repairing of residential buildings, critical infrastructure;

- provision of housing for internally displaced persons and persons who lost their housing as a result of hostilities;

- purchase of school buses and special transport for healthcare institutions and communal enterprises;

• expenditures on education were increased by UAH 555 million, in particular, UAH 150 million for the development of distance education, UAH 215 million for ensuring the conduct of external independent evaluation;
• expenditures on culture in the amount of UAH 235 million, including implementation of projects by the Ukrainian Cultural Fund and the Ukrainian Book Institute;
• provision of concessional mortgage loans to internally displaced persons - UAH 20 million.

In addition, expenditures were redistributed between administrators of budget funds and under separate budget programs in order to optimize them and take into account the proposals of the Members of Parliament. In particular, it is foreseen in a new budget program State Regional Development Fund for in the amount of UAH 2 billion.