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20 Sep. 2023

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Ukraine's 2024 budget: how does it differ from previous ones and is it possible to find the funds?

Finance
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Krieg
Ukraine

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Ukraine's 2024 budget: how does it differ from previous ones and is it possible to find the funds?

The budget for 2024 will differ significantly from previous military budgets. Find out what the fundamental difference is, how the changes will affect Ukrainian citizens, and what risks such public spending planning poses

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On September 15, the Cabinet of Ministers of Ukraine approved the draft Law of Ukraine "On the State Budget of Ukraine for 2024," and compared to the two previous "war budgets," it is significantly different. The fundamental difference lies in the distribution of funds and the closure of a number of "peaceful programs." In addition, the state budget contains several unusual innovations that will affect local governments.


"Absolutely all elements of state work should be set up so that we can determine the time of the end of this war here in Ukraine - our victory," Volodymyr Zelenskyy said in his address on the evening of September 13.


At the same time, the budget for 2024 has one main similarity with the previous ones: a deficit that will be covered by Ukraine's financial partners at the expense of non-military expenditures. After all, the Ukrainian economy will simply not be able to finance salaries, pensions, education, healthcare, construction, and development on its own. At the same time, the budget includes an increase in the minimum wage and pensions. So where does the government plan to get the money?


Where will all the taxes collected and money earned go?


In 2024, the government plans to raise UAH 1.56 trillion for the general budget fund. The funds will come from taxes, duties, dividends and state-owned enterprises. However, the amount of planned expenditures is much higher than the amount of revenues. We are talking about UAH 3.1 trillion. Defense spending will be the same as in 2023 - UAH 1.68 trillion.


Thus, Ukraine will be able to finance only half of the budget, and expects to receive the rest from its partners. And given the fact that the West does not fund war expenses on principle, all the money earned will go to the army, and the rest will go to the national debt. According to preliminary estimates, it will grow to UAH 8.18 trillion.


The second largest item of expenditure is social spending, with the government planning to spend almost UAH 470 billion. Much of this money will be used to cover the Pension Fund's deficit.


What is the main difference between the 2024 budget and the previous ones?


The fundamental difference is that the government has closed the Big Construction program. Now, if necessary, funds will be taken from the Reserve Fund to restore the road surface. That is, the Road Fund has been put on hold, and all funds will go to the general state treasury. It should be noted that in 2023, its budget amounted to almost UAH 65 billion.


As for the restoration of the rest of the infrastructure destroyed by russia, the funds will be taken from the fund for liquidation of the consequences of russia's armed aggression. That is, the damage will be repaired at the expense of assets confiscated from russian legal entities and individuals in Ukraine, as well as from the EU-funded program "Support for Ukraine's Early Recovery."


In addition, the main change for local budgets will be that a portion of personal income taxes (PIT) will be redirected to the military in a special fund. In particular, to cover deficits and purchase equipment, production and purchase of drones. Thus, local governments will no longer be able to use these funds at their own discretion and, as they like, "lay new pavement and plant flower beds."




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How will the changes in the state budget affect the population of Ukraine?


In 2024, the government plans to unfreeze salary and pension increases. Starting January 1, the minimum wage will increase from UAH 6,700 to UAH 7,100, and in July to UAH 8,000.


The same applies to pensions. In the spring of 2024, it is planned to index and introduce a system of coefficients and points to equalize pensions for people with the same length of service but who retired in different years. Currently, those who retired recently receive more money than those who have been retired for a long time. Thus, the government plans to raise the average pension to UAH 6,000. Today, it is just above UAH 5,500.


The government also plans to allocate funds to support war veterans, in particular, a significant part of the UAH 14 billion budgeted will be used to purchase housing for combatants and their families. Another part of the funds - UAH 3.8 billion - will be used to create the Institute of Veteran Assistants.


Elections in 2024: to be or not to be?


Despite pressure from the West and heated debates, the state budget for 2024 does not include any expenditures for elections. Therefore, as expected, Ukraine has no plans for changes in the government and authorities, as it is almost impossible to hold legitimate elections during the war. There is neither an understanding of the process nor legal mechanisms for this.


Will the government find the funds to cover the budget?


The main obstacle is that the financial support of partners in 2024 may not coincide with the expectations of the Ukrainian government, because no one gives a "blank check" that can be used to write any amount anymore. Moreover, the US elections may also affect financial assistance.


It should also be borne in mind that Ukraine's loan repayment holidays, which the government agreed to in 2022, will expire in mid-2024. This means that Ukraine will either have to enter into new restructuring agreements or "print money on the machine" to repay its debts.


We remind you! The Ministry of Energy has denied reports of possible power outages in different regions of Ukraine starting October 1. Read more about whether the power will be cut off, the current state of Ukraine's energy system, and what is known about the new heating season of 2023 in our previous article.




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