2012 budget deficit 2.8%? - Going to be hard!

As many of you dear readers will know, Irina Akimova is a woman I place head and shoulders above every other politician and political advisor in Ukraine from anywhere across the political spectrum. For me, she is the best and most sensible, academically enlightened voice in a position of influence that Ukraine possess. She is no-nonsense, clear speaking, and proven to be right rather than wrong far more often that not.

In short she is the best President or Prime Minister Ukraine will sadly never have and if there are any saving graces to the Party of Regions, she is most certainly one of them.

Whilst I have many issues that put me at opposition with the current government, I have never been opposed to anything she has said.

However, I am now going to question a recent statement she made relating to the budget deficit for 2012, which she claims will be 2.8% “irrespective of the new price for Russian gas”.

It is of course pleasing that she has not allowed and best case scenario to be priced into the budget to simply have it blown to pieces by a breakdown in negotiations with Russia over the current ludicrously high gas prices Ukraine pays. (Far more than the average EU price.)

In theory the budget therefore removes the need for yet another poor policy decision, this time relating to a forced decision over the GTS to Ukraine’s disadvantage, in order to meet the national budget. Unfortunately simply because the budgetary constraints do not force a poor policy decision does not mean a poor policy decision will not be made. However that decision will not be made by Ms Akimova.

As yet, the budget for 2012 is yet to be passed by the RADA so it is not possible to see how the government is going to manage to achieve such a small deficit. By the end of next week I understand it will pass in the RADA and thus an opportunity will arise to dissect the budget and discover how such a low deficit will be achieved, particularly if gas price negotiations with Russia break down.

Noises coming out of Moscow indicate that Russia is still prepared to spend $20 billion delivering the South Stream project bypassing Ukraine and going directly to Italy rather than spending $5 billion upgrading the Ukrainian GTS. Hardly a strong negotiating position for Ukraine to reduce the gas price it currently pays unless it is prepared to make an extreme sacrifice over the GTS.

So, for now, whilst I do not disagree with Ms Akimova, for the first time, I do question the ability to achieve something she has said. I will however, be happy to defer and be wrong.