Ukraine economy update, July 2015

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July 6, 2015

Ukraine economy update, July 2015

By Yurasumy

Translated from Russian by J.Hawk

Ukraine’s budget. Preliminary data.

Here are the budget revenue statistics for January through May 2015.

Here are the conclusions that can be drawn from the statistics:

General revenue dropped by 8% by comparison with May. In general that’s typical for June. In view of the sharp revenue drop in June 2014, it appears that the budgets will collect 31-32% more than last year (once we see the full statistics). Here’s the situation per different forms of taxation:

June:

VAT on imported goods–10,44b billion hryvnya (9,638 billion in May)
More than in May, but still much less than in March and April.

VAT on domestic goods–7,912 billion (May 8,194 billion)
The fall is continuing. May was disastrous, June was even worse.

Natural resource rents–1,325 billion (May 5,135 billion)
May saw a mad increase in gas revenues. I can’t say why we are seeing such  a decrease in the current quarter. Maybe the “gasmen” are rebelling or there are other problems. Maybe I missed something, or perhaps the tax people omitted something from their report ???

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Excise tax on Ukrainian goods–1,611 billion (May 3,247 billion)
A drop by 50% in one month.
 Excise tax on imported goods–1,968 billion (May–1,811 billion)
The growth is proportional to VAT growth. Incidentally, this is a historic moment. For the first time excise tax revenue from imported goods exceeds revenue from domestic goods.

 Customs duties–2,936 billion (May–2,795 billion).
As expected. Imports increased a bit, so did the customs duties.

Conclusions. Import taxes have grown. Internal taxes have decreased noticeably. So we are seeing a drop in production and…no import substitution. At the same time Ukraine’s exports are gradually collapsing.

Prices in June.

In comparison with May 2015, June prices grew by only.4%, by 40.7% by comparison with December 2014, by 57.5% by comparison with May 2014.

This is unambiguously better than data from previous months. The government is fighting to maintain the dollar exchange rate and therefore prices through hands-on management. It was a difficult struggle due to energy price increases. But by June they got the process under control. Well done. But that’s only a temporary success because it was achieved by turning the budget screws tighter by underfinancing domestic expenditures. Sellers are forced to reduce prices which is good for the population but bad for the economy. However, the IMF is demanding macro indicators and the dollar exchange rate be kept within certain limits. So they are keeping them in check. Of course, the GDP is now out of control but who cares about that. The GDP has no influence over whether the next IMF tranche will be issued.
Ukraine exports in May-June

Metallurgical industry revenues from ferrous metal exports in January-June 2015 dropped by 41.2% in comparison with January-June 2014, to 4,296 billion hryvnya.

Customs statistics indicate that ferrous metals now constitute 23.14% of all export revenue, against 25.46% during the same period last year.

Comments. Through simple calculations, we obtain 18,57 billion dollars in the first half of 2015. The most recent statistic is for April (12.56 billion USD). Therefore May and June amount to only 6.01 billion USD, which is catastrophically worse than last year’s data.

It also looks bad in comparison with earlier 2015 data.

Exports have been stagnating around 3 billion USD per month. Russian markets have been lost, and now grain, metal, and sunflower oil are the dominant export items (more than half of all export revenue). Ukraine has become a narrowly specialized raw materials appendage. EU integration will solidify that status FOREVER. How is it to break the cycle? With whom? If you want to stop the pro-EU policy you are a “separatist.” If not, then you have to suffer. That’s a closed cycle. Starting with “democracy” and ending with flushing the economy down the toilet.

J.Hawk’s Comment: I think the big news, the surprising news, are the internal VAT (value-added tax) data. Internal production is collapsing and/or it is disappearing into the “grey economy” which pays no taxes of any kind. Everything else is par for the course.

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