Next year, the Cabinet of Ministers plans to allocate UAH 31 billion for business development
At the end of last week, the Cabinet of Ministers approved draft law №10000 «On the State Budget of Ukraine for 2024». Because of the war, the share of spending on defense and security exceeds 50% – UAH 1.68 trillion or 21.6% of GDP. Business support is officially only the fifth priority of the document – only UAH 30.8 billion is planned to be allocated from the state budget to stimulate business activity.
This budget will be the second to be developed under conditions of war and with a total predominance of spending on defense and security. As in the previous two years, the country’s main financial document will have one of the record deficits – 20.4% of projected GDP. For the third year now, Ukraine’s non-military expenses will be financed by international partners.
Among the main projected indicators of the draft state budget 2024, the following can be noted:
- income – UAH 1.75 trillion (+31% by 2023);
- expenses – UAH 3.3 trillion (+25%);
- deficit – UAH 1.53 trillion (+16.7%) or 20.4% of projected GDP;
- real GDP growth – 5%;
- inflation rate – 10.8% (expected figure in 2023 – 14.7%);
- industrial producer price index – 12.5% (19.4%);
- average annual US dollar exchange rate – 41.4 UAH/$;
- average monthly salary – 21.85 thousand UAH (18.12 thousand UAH);
- the minimum salary is UAH 7,100 from January 1 and UAH 8,000 from July 1.
“The given forecast indicators for 2023–2024 in wartime conditions, with constant changes in the course of events at the front, external and internal conditions of economic development, the emergence of new challenges and shocks for the country, are an assessment in real time with a significant degree of uncertainty, and taking into account the current variability of the socio-economic situation can be clarified and revised both for improvement and for deterioration,” says the explanatory note to the draft state budget 2024.
High uncertainty becomes clear from the correction of the state budget for the current year. For example, on September 2, the government registered in the Verkhovna Rada a bill to increase state budget expenditures for the current year by UAH 317 billion at once. Almost 303 billion UAH are for defense needs. This is already the second large-scale expansion of the defense budget – in March 2023, total state budget expenditures were increased by more than UAH 500 billion.
The draft budget for 2024 lacks the largest source of income – international grants. International partners have financed $30 billion in expenses this year. During the 19 months of the war, Ukraine has raised more than $62 billion. Next year, approximately $42.8 billion will be required from partners to cover budget expenses.
According to Daniil Getmantsev, head of the Verkhovna Rada Committee on Finance, Tax and Customs Policy, UAH 31 billion will be allocated for direct business support (cheaper lending, grants, compensation for the cost of domestic agricultural equipment, etc.).
In particular, among the programs to support domestic business, the Cabinet of Ministers planned in the draft state budget for 2024 to allocate funds for:
- business support through the Entrepreneurship Development Fund (in particular, through the Affordable Loans 5-7-9% program) – UAH 18 billion (UAH 2 billion more than in 2023);
- providing grants to businesses for the creation or development of processing enterprises, horticulture and greenhouse farming – UAH 1.4 billion;
- state support for domestic demand for domestic goods and services – UAH 3 billion;
- state support for the implementation of investment projects with significant investments – UAH 3 billion;
- stimulating the development of industrial parks – UAH 1 billion;
- humanitarian demining of agricultural lands – UAH 2 billion.
“The fifth priority is the recovery of our economy. No tax increases are expected. The government continues preferential lending programs, the eRobot non-repayable grant program, and support for Ukrainian startups. We are also launching new programs for industrial parks, the implementation of investment projects, to support Ukrainian producers,” notes Prime Minister Denis Shmygal.
Due to the actual disbandment of the road fund, they promise to finance the restoration of roads in the front-line regions from the Reserve Fund – UAH 44.8 billion, which is more than twice as much as the plan for 2023). Also from the special fund are guarantees for loans for the completion of the metro in Kharkiv (UAH 722 million) and Dnipro (UAH 549.1 million).
The government has improved the conditions for stimulating development for processing enterprises. Thus, through eRobot program, small businesses can receive a grant of up to UAH 8 million to modernize production facilities, increase production volumes and increase the competitiveness of products.
In addition, the government has improved the conditions for business support under the Affordable Loans 5-7-9% program, in particular for:
- resumption and support of business development in de-occupied territories;
- support for processing enterprises;
- implementation of projects in the field of energy efficiency.
For processing enterprises and energy modernization projects the following is provided:
- interest compensation under the program up to the level of 5-7-9%;
- increasing the loan term to 10 years for investment purposes;
- increasing the lending limit to UAH 150 million.
For all other cases, the rate for investment purposes remains at the level of 5-7-9%, for financing working capital – at 13% per annum. Previously the Affordable Loans 5-7-9% program was mainly used by agricultural and trading companies to pay off old debts, and not for investment purposes.
Substantial support is provided for the Ukrainian military-industrial complex (MIC). The draft budget for the development of the defense industry includes UAH 55.8 billion and UAH 48.1 billion for the purchase of drones. To increase the production of its own drones, weapons and ammunition, the Cabinet of Ministers submitted a bill, which proposes that the personal income tax on military allowances be redirected from local budgets to centralized military purchases. Thus, the government wants to attract UAH 25.8 billion this year and UAH 93.7 billion – in 2024.
One of the good things about the draft state budget 2024 for business is that the document does not involve raising taxes. For the rest, businesses should rely mainly on themselves. The business activity expectations index, calculated by the NBU, rose to 49.3 points in August from 48.8 in July and approached the neutral estimate of 50 points. Business expectations improved slightly in August, led by trade and industry. At the same time, Russia’s possible resumption of missile attacks on energy infrastructure in the fall will have a negative impact on business activity.
One of the main tasks now facing the government is the restoration of war-damaged infrastructure, which can largely be attributed to stimulating domestic demand for products and services. The draft state budget 2024 provides funding for the Ministry of Development of Communities, Territories and Infrastructure (Ministry of Reconstruction) in the amount of UAH 12.5 billion and the State Agency for Reconstruction and Infrastructure Development (Reconstruction Agency) in the amount of UAH 26.3 billion.
23 billion UAH of the funds for financing the Recovery Agency are intended to fulfill debt obligations on loans for the development of a network of public roads, and only 3.1 billion UAH are intended for the implementation of projects under the Support for the Rapid Recovery of Ukraine program. And the 12.5 billion UAH allocated by the Ministry of Reconstruction may barely be enough for the operational maintenance of roads in the country.
There is no state fund for regional development in the draft state budget 2024, but UAH 44.8 billion has been allocated for unforeseen expenses in the Reserve Fund.
It is planned to allocate UAH 9 billion for subventions to local budgets, of which UAH 4.5 billion will be allocated for the implementation of projects through Ukraine Recovery Program; UAH 2.3 billion – for the implementation of projects thorugh Emergency Credit Program for the Reconstruction of Ukraine; UAH 519.5 million – for the restoration of critical infrastructure facilities as part of the implementation of the «Urban Infrastructure Development Project – 2» together with the International Bank for Reconstruction and Development.
Among other things, with the assistance of the EU, infrastructure restoration will continue under the Support for the Rapid Recovery of Ukraine program in the amount of UAH 3.2 billion.
According to Prime Minister Denis Shmygal, The Cabinet of Ministers has already allocated UAH 60 billion for the rapid restoration of war-damaged infrastructure. In 2023, it was possible to attract $3.3 billion in expenses from partners for rapid restoration. Meanwhile, the need for such financing is $10-15 billion per year. The Fund for Eliminating the Consequences of Armed Aggression was not included in the state budget for 2024, as funds are expected to be raised from partners. In 2024, it is expected to attract loans in the amount of UAH 62.1 billion from foreign partners to finance infrastructure development and restoration projects. In addition, grants from partners in the amount of UAH 2.4 billion are expected to be received for the same purposes next year.
In general, the Cabinet of Ministers submitted the draft law on the state budget on time. Until October 1, people’s deputies will make their proposals. Then the Cabinet of Ministers must take into account or reject the proposals of parliamentarians, preparing a new draft for the second reading. The deadline for adoption of the law on the state budget 2024 is December 1.