NBU: Budget deficit to exceed 26% of GDP in 2023

The National Bank of Ukraine (NBU) projects an expansion of the budget deficit to 26% of GDP by the end of the year with a gradual narrowing in the future.

“Given sizable expenditures on defense and security, and the significantly narrowed funding base due to the fallout from the war, the budget deficit will expand to more than 26% of GDP in 2023. Going forward, the budget shortfall will slowly shrink,” reads NBU’s inflation report released on a quarterly basis.

However, fiscal policy will remain accommodative throughout the forecast horizon, a condition that is particularly vital for bolstering the post-war economic recovery.

International financial aid is expected to be the primary way of financing the significant budget deficit this year. At the same time, domestic borrowing will grow in importance, partially due to the rising investment appeal of government securities as the risk premium and inflation subside.

The central bank notes that the debt burden in the years ahead will be relatively moderate thanks to preferential terms of new loans granted to Ukraine.

As reported, the budget deficit in April totaled UAH 31.5 billion. The largest item of expenditure was defense, to which 46.3% of all funds were directed.