diff --git a/cli/nep17_test.go b/cli/nep17_test.go
index 1c6984814..ff9e65408 100644
--- a/cli/nep17_test.go
+++ b/cli/nep17_test.go
@@ -86,7 +86,7 @@ func TestNEP17Balance(t *testing.T) {
 		}
 
 		e.checkNextLine(t, "^\\s*$")
-		addr4, err := address.StringToUint160("NQKpygA5oG8KRivZeYjXVU2T1ZPmUmaqQF") // deployed verify.go contract
+		addr4, err := address.StringToUint160("NU4CTk9H2fgNCuC3ZPqX4LjUX3MHt3Rh6p") // deployed verify.go contract
 		require.NoError(t, err)
 		e.checkNextLine(t, "^Account "+address.Uint160ToString(addr4))
 		e.checkEOF(t)
diff --git a/cli/testdata/wallet1_solo.json b/cli/testdata/wallet1_solo.json
index 40c719cba..6cc20c33b 100644
--- a/cli/testdata/wallet1_solo.json
+++ b/cli/testdata/wallet1_solo.json
@@ -63,9 +63,9 @@
       "key" : "6PYM8VdX2BSm7BSXKzV4Fz6S3R9cDLLWNrD9nMjxW352jEv3fsC8N3wNLY"
     },
     {
-      "address" : "NQKpygA5oG8KRivZeYjXVU2T1ZPmUmaqQF",
+      "address" : "NU4CTk9H2fgNCuC3ZPqX4LjUX3MHt3Rh6p",
       "contract" : {
-        "script" : "VwEAEdsgQFcAA0BXAQR4eXp7VBTAcAwOT25ORVAxMVBheW1lbnRoUEGVAW9hIUA=",
+        "script" : "EdsgQFcAA0BXAQR4eXp7VBTAcAwOT25ORVAxMVBheW1lbnRoUEGVAW9hIUA=",
         "parameters" : [],
         "deployed" : true
       },
diff --git a/pkg/compiler/analysis.go b/pkg/compiler/analysis.go
index 112c6945d..019f4a7c9 100644
--- a/pkg/compiler/analysis.go
+++ b/pkg/compiler/analysis.go
@@ -37,46 +37,20 @@ func (c *codegen) getIdentName(pkg string, name string) string {
 }
 
 // traverseGlobals visits and initializes global variables.
-// and returns number of variables initialized.
-// Second return value is -1 if no `init()` functions were encountered
-// and number of maximum amount of locals in any of init functions otherwise.
-// Same for `_deploy()` functions (see docs/compiler.md).
-func (c *codegen) traverseGlobals() (int, int, int) {
+// It returns `true` if contract has `_deploy` function.
+func (c *codegen) traverseGlobals() bool {
 	var hasDefer bool
 	var n, nConst int
-	initLocals := -1
-	deployLocals := -1
+	var hasDeploy bool
 	c.ForEachFile(func(f *ast.File, pkg *types.Package) {
 		nv, nc := countGlobals(f)
 		n += nv
 		nConst += nc
-		if initLocals == -1 || deployLocals == -1 || !hasDefer {
+		if !hasDeploy || !hasDefer {
 			ast.Inspect(f, func(node ast.Node) bool {
 				switch n := node.(type) {
-				case *ast.GenDecl:
-					if n.Tok == token.VAR {
-						for i := range n.Specs {
-							for _, v := range n.Specs[i].(*ast.ValueSpec).Values {
-								num := c.countLocalsCall(v, pkg)
-								if num > initLocals {
-									initLocals = num
-								}
-							}
-						}
-					}
 				case *ast.FuncDecl:
-					if isInitFunc(n) {
-						num, _ := c.countLocals(n)
-						if num > initLocals {
-							initLocals = num
-						}
-					} else if isDeployFunc(n) {
-						num, _ := c.countLocals(n)
-						if num > deployLocals {
-							deployLocals = num
-						}
-					}
-					return !hasDefer
+					hasDeploy = hasDeploy || isDeployFunc(n)
 				case *ast.DeferStmt:
 					hasDefer = true
 					return false
@@ -88,43 +62,74 @@ func (c *codegen) traverseGlobals() (int, int, int) {
 	if hasDefer {
 		n++
 	}
-	if n+nConst != 0 || initLocals > -1 {
-		if n > 255 {
-			c.prog.BinWriter.Err = errors.New("too many global variables")
-			return 0, initLocals, deployLocals
-		}
-		if n != 0 {
-			emit.Instruction(c.prog.BinWriter, opcode.INITSSLOT, []byte{byte(n)})
-		}
-		if initLocals > 0 {
-			emit.Instruction(c.prog.BinWriter, opcode.INITSLOT, []byte{byte(initLocals), 0})
-		}
-		seenBefore := false
-		c.ForEachPackage(func(pkg *loader.PackageInfo) {
-			if n+nConst > 0 {
-				for _, f := range pkg.Files {
-					c.fillImportMap(f, pkg.Pkg)
-					c.convertGlobals(f, pkg.Pkg)
-				}
+
+	if n > 255 {
+		c.prog.BinWriter.Err = errors.New("too many global variables")
+		return hasDeploy
+	}
+
+	if n != 0 {
+		emit.Instruction(c.prog.BinWriter, opcode.INITSSLOT, []byte{byte(n)})
+	}
+
+	initOffset := c.prog.Len()
+	emit.Instruction(c.prog.BinWriter, opcode.INITSLOT, []byte{0, 0})
+
+	lastCnt, maxCnt := -1, -1
+	c.ForEachPackage(func(pkg *loader.PackageInfo) {
+		if n+nConst > 0 {
+			for _, f := range pkg.Files {
+				c.fillImportMap(f, pkg.Pkg)
+				c.convertGlobals(f, pkg.Pkg)
 			}
-			if initLocals > -1 {
-				for _, f := range pkg.Files {
-					c.fillImportMap(f, pkg.Pkg)
-					seenBefore = c.convertInitFuncs(f, pkg.Pkg, seenBefore) || seenBefore
-				}
+		}
+		for _, f := range pkg.Files {
+			c.fillImportMap(f, pkg.Pkg)
+
+			var currMax int
+			lastCnt, currMax = c.convertInitFuncs(f, pkg.Pkg, lastCnt)
+			if currMax > maxCnt {
+				maxCnt = currMax
+			}
+		}
+		// because we reuse `convertFuncDecl` for init funcs,
+		// we need to cleare scope, so that global variables
+		// encountered after will be recognized as globals.
+		c.scope = nil
+	})
+
+	if c.globalInlineCount > maxCnt {
+		maxCnt = c.globalInlineCount
+	}
+
+	// Here we remove `INITSLOT` if no code was emitted for `init` function.
+	// Note that the `INITSSLOT` must stay in place.
+	hasNoInit := initOffset+3 == c.prog.Len()
+	if hasNoInit {
+		buf := c.prog.Bytes()
+		c.prog.Reset()
+		c.prog.WriteBytes(buf[:initOffset])
+	}
+
+	if initOffset != 0 || !hasNoInit { // if there are some globals or `init()`.
+		c.initEndOffset = c.prog.Len()
+		emit.Opcodes(c.prog.BinWriter, opcode.RET)
+
+		if maxCnt >= 0 {
+			c.reverseOffsetMap[initOffset] = nameWithLocals{
+				name:  "init",
+				count: maxCnt,
 			}
-			// because we reuse `convertFuncDecl` for init funcs,
-			// we need to cleare scope, so that global variables
-			// encountered after will be recognized as globals.
-			c.scope = nil
-		})
-		// store auxiliary variables after all others.
-		if hasDefer {
-			c.exceptionIndex = len(c.globals)
-			c.globals["<exception>"] = c.exceptionIndex
 		}
 	}
-	return n, initLocals, deployLocals
+
+	// store auxiliary variables after all others.
+	if hasDefer {
+		c.exceptionIndex = len(c.globals)
+		c.globals[exceptionVarName] = c.exceptionIndex
+	}
+
+	return hasDeploy
 }
 
 // countGlobals counts the global variables in the program to add
diff --git a/pkg/compiler/codegen.go b/pkg/compiler/codegen.go
index 81d5dedcd..c2cf96533 100644
--- a/pkg/compiler/codegen.go
+++ b/pkg/compiler/codegen.go
@@ -40,6 +40,9 @@ type codegen struct {
 	// A mapping of lambda functions into their scope.
 	lambda map[string]*funcScope
 
+	// reverseOffsetMap maps function offsets to a local variable count.
+	reverseOffsetMap map[int]nameWithLocals
+
 	// Current funcScope being converted.
 	scope *funcScope
 
@@ -58,6 +61,9 @@ type codegen struct {
 	// inlineLabelOffsets contains size of labelList at the start of inline call processing.
 	// For such calls we need to drop only newly created part of stack.
 	inlineLabelOffsets []int
+	// globalInlineCount contains amount of auxiliary variables introduced by
+	// function inlining during global variables initialization.
+	globalInlineCount int
 
 	// A label for the for-loop being currently visited.
 	currentFor string
@@ -124,6 +130,11 @@ type labelWithStackSize struct {
 	sz   int
 }
 
+type nameWithLocals struct {
+	name  string
+	count int
+}
+
 type varType int
 
 const (
@@ -333,24 +344,30 @@ func (c *codegen) clearSlots(n int) {
 	}
 }
 
-func (c *codegen) convertInitFuncs(f *ast.File, pkg *types.Package, seenBefore bool) bool {
+// convertInitFuncs converts `init()` functions in file f and returns
+// number of locals in last processed definition as well as maximum locals number encountered.
+func (c *codegen) convertInitFuncs(f *ast.File, pkg *types.Package, lastCount int) (int, int) {
+	maxCount := -1
 	ast.Inspect(f, func(node ast.Node) bool {
 		switch n := node.(type) {
 		case *ast.FuncDecl:
 			if isInitFunc(n) {
-				if seenBefore {
-					cnt, _ := c.countLocals(n)
-					c.clearSlots(cnt)
-					seenBefore = true
+				if lastCount != -1 {
+					c.clearSlots(lastCount)
+				}
+
+				f := c.convertFuncDecl(f, n, pkg)
+				lastCount = f.vars.localsCnt
+				if lastCount > maxCount {
+					maxCount = lastCount
 				}
-				c.convertFuncDecl(f, n, pkg)
 			}
 		case *ast.GenDecl:
 			return false
 		}
 		return true
 	})
-	return seenBefore
+	return lastCount, maxCount
 }
 
 func isDeployFunc(decl *ast.FuncDecl) bool {
@@ -363,19 +380,22 @@ func isDeployFunc(decl *ast.FuncDecl) bool {
 	return ok && typ.Name == "bool"
 }
 
-func (c *codegen) convertDeployFuncs() {
-	seenBefore := false
+func (c *codegen) convertDeployFuncs() int {
+	maxCount, lastCount := 0, -1
 	c.ForEachFile(func(f *ast.File, pkg *types.Package) {
 		ast.Inspect(f, func(node ast.Node) bool {
 			switch n := node.(type) {
 			case *ast.FuncDecl:
 				if isDeployFunc(n) {
-					if seenBefore {
-						cnt, _ := c.countLocals(n)
-						c.clearSlots(cnt)
+					if lastCount != -1 {
+						c.clearSlots(lastCount)
+					}
+
+					f := c.convertFuncDecl(f, n, pkg)
+					lastCount = f.vars.localsCnt
+					if lastCount > maxCount {
+						maxCount = lastCount
 					}
-					c.convertFuncDecl(f, n, pkg)
-					seenBefore = true
 				}
 			case *ast.GenDecl:
 				return false
@@ -383,9 +403,10 @@ func (c *codegen) convertDeployFuncs() {
 			return true
 		})
 	})
+	return maxCount
 }
 
-func (c *codegen) convertFuncDecl(file ast.Node, decl *ast.FuncDecl, pkg *types.Package) {
+func (c *codegen) convertFuncDecl(file ast.Node, decl *ast.FuncDecl, pkg *types.Package) *funcScope {
 	var (
 		f            *funcScope
 		ok, isLambda bool
@@ -399,7 +420,7 @@ func (c *codegen) convertFuncDecl(file ast.Node, decl *ast.FuncDecl, pkg *types.
 		if ok {
 			// If this function is a syscall or builtin we will not convert it to bytecode.
 			if isSyscall(f) || isCustomBuiltin(f) {
-				return
+				return f
 			}
 			c.setLabel(f.label)
 		} else if f, ok = c.lambda[c.getIdentName("", decl.Name.Name)]; ok {
@@ -417,17 +438,11 @@ func (c *codegen) convertFuncDecl(file ast.Node, decl *ast.FuncDecl, pkg *types.
 	// All globals copied into the scope of the function need to be added
 	// to the stack size of the function.
 	if !isInit && !isDeploy {
-		sizeLoc := c.countLocalsWithDefer(f)
-		if sizeLoc > 255 {
-			c.prog.Err = errors.New("maximum of 255 local variables is allowed")
-		}
 		sizeArg := f.countArgs()
 		if sizeArg > 255 {
 			c.prog.Err = errors.New("maximum of 255 local variables is allowed")
 		}
-		if sizeLoc != 0 || sizeArg != 0 {
-			emit.Instruction(c.prog.BinWriter, opcode.INITSLOT, []byte{byte(sizeLoc), byte(sizeArg)})
-		}
+		emit.Instruction(c.prog.BinWriter, opcode.INITSLOT, []byte{byte(0), byte(sizeArg)})
 	}
 
 	f.vars.newScope()
@@ -478,6 +493,14 @@ func (c *codegen) convertFuncDecl(file ast.Node, decl *ast.FuncDecl, pkg *types.
 		}
 		c.lambda = make(map[string]*funcScope)
 	}
+
+	if !isInit && !isDeploy {
+		c.reverseOffsetMap[int(f.rng.Start)] = nameWithLocals{
+			name:  f.name,
+			count: f.vars.localsCnt,
+		}
+	}
+	return f
 }
 
 func (c *codegen) Visit(node ast.Node) ast.Visitor {
@@ -1296,7 +1319,9 @@ func (c *codegen) processDefers() {
 		c.setLabel(stmt.catchLabel)
 		c.emitStoreByIndex(varGlobal, c.exceptionIndex)
 		emit.Int(c.prog.BinWriter, 1)
-		c.emitStoreByIndex(varLocal, c.scope.finallyProcessedIndex)
+
+		finalIndex := c.getVarIndex("", finallyVarName).index
+		c.emitStoreByIndex(varLocal, finalIndex)
 		ast.Walk(c, stmt.expr)
 		if i == 0 {
 			// After panic, default values must be returns, except for named returns,
@@ -1309,12 +1334,12 @@ func (c *codegen) processDefers() {
 
 		c.setLabel(stmt.finallyLabel)
 		before := c.newLabel()
-		c.emitLoadByIndex(varLocal, c.scope.finallyProcessedIndex)
+		c.emitLoadByIndex(varLocal, finalIndex)
 		emit.Jmp(c.prog.BinWriter, opcode.JMPIFL, before)
 		ast.Walk(c, stmt.expr)
 		c.setLabel(before)
 		emit.Int(c.prog.BinWriter, 0)
-		c.emitStoreByIndex(varLocal, c.scope.finallyProcessedIndex)
+		c.emitStoreByIndex(varLocal, finalIndex)
 		emit.Opcodes(c.prog.BinWriter, opcode.ENDFINALLY)
 		c.setLabel(after)
 	}
@@ -1959,17 +1984,16 @@ func (c *codegen) compile(info *buildInfo, pkg *loader.PackageInfo) error {
 	// Bring all imported functions into scope.
 	c.ForEachFile(c.resolveFuncDecls)
 
-	n, initLocals, deployLocals := c.traverseGlobals()
-	hasInit := initLocals > -1
-	if n > 0 || hasInit {
-		c.initEndOffset = c.prog.Len()
-		emit.Opcodes(c.prog.BinWriter, opcode.RET)
-	}
+	hasDeploy := c.traverseGlobals()
 
-	hasDeploy := deployLocals > -1
 	if hasDeploy {
-		emit.Instruction(c.prog.BinWriter, opcode.INITSLOT, []byte{byte(deployLocals), 2})
-		c.convertDeployFuncs()
+		deployOffset := c.prog.Len()
+		emit.Instruction(c.prog.BinWriter, opcode.INITSLOT, []byte{0, 2})
+		locCount := c.convertDeployFuncs()
+		c.reverseOffsetMap[deployOffset] = nameWithLocals{
+			name:  "_deploy",
+			count: locCount,
+		}
 		c.deployEndOffset = c.prog.Len()
 		emit.Opcodes(c.prog.BinWriter, opcode.RET)
 	}
@@ -2006,16 +2030,17 @@ func (c *codegen) compile(info *buildInfo, pkg *loader.PackageInfo) error {
 
 func newCodegen(info *buildInfo, pkg *loader.PackageInfo) *codegen {
 	return &codegen{
-		buildInfo: info,
-		prog:      io.NewBufBinWriter(),
-		l:         []int{},
-		funcs:     map[string]*funcScope{},
-		lambda:    map[string]*funcScope{},
-		globals:   map[string]int{},
-		labels:    map[labelWithType]uint16{},
-		typeInfo:  &pkg.Info,
-		constMap:  map[string]types.TypeAndValue{},
-		docIndex:  map[string]int{},
+		buildInfo:        info,
+		prog:             io.NewBufBinWriter(),
+		l:                []int{},
+		funcs:            map[string]*funcScope{},
+		lambda:           map[string]*funcScope{},
+		reverseOffsetMap: map[int]nameWithLocals{},
+		globals:          map[string]int{},
+		labels:           map[labelWithType]uint16{},
+		typeInfo:         &pkg.Info,
+		constMap:         map[string]types.TypeAndValue{},
+		docIndex:         map[string]int{},
 
 		initEndOffset:   -1,
 		deployEndOffset: -1,
@@ -2085,6 +2110,18 @@ func (c *codegen) writeJumps(b []byte) ([]byte, error) {
 			if op != opcode.PUSHA && math.MinInt8 <= offset && offset <= math.MaxInt8 {
 				offsets = append(offsets, ctx.IP())
 			}
+		case opcode.INITSLOT:
+			nextIP := ctx.NextIP()
+			info := c.reverseOffsetMap[ctx.IP()]
+			if argCount := b[nextIP-1]; info.count == 0 && argCount == 0 {
+				offsets = append(offsets, ctx.IP())
+				continue
+			}
+
+			if info.count > 255 {
+				return nil, fmt.Errorf("func '%s' has %d local variables (maximum is 255)", info.name, info.count)
+			}
+			b[nextIP-2] = byte(info.count)
 		}
 	}
 
@@ -2137,6 +2174,7 @@ func (c *codegen) replaceLabelWithOffset(ip int, arg []byte) (int, error) {
 }
 
 // longToShortRemoveCount is a difference between short and long instruction sizes in bytes.
+// By pure coincidence, this is also the size of `INITSLOT` instruction.
 const longToShortRemoveCount = 3
 
 // shortenJumps returns converts b to a program where all long JMP*/CALL* specified by absolute offsets,
@@ -2194,13 +2232,22 @@ func shortenJumps(b []byte, offsets []int) []byte {
 	// 2. Convert instructions.
 	copyOffset := 0
 	l := len(offsets)
-	b[offsets[0]] = byte(toShortForm(opcode.Opcode(b[offsets[0]])))
+	if op := opcode.Opcode(b[offsets[0]]); op != opcode.INITSLOT {
+		b[offsets[0]] = byte(toShortForm(op))
+	}
 	for i := 0; i < l; i++ {
 		start := offsets[i] + 2
+		if b[offsets[i]] == byte(opcode.INITSLOT) {
+			start = offsets[i]
+		}
+
 		end := len(b)
 		if i != l-1 {
-			end = offsets[i+1] + 2
-			b[offsets[i+1]] = byte(toShortForm(opcode.Opcode(b[offsets[i+1]])))
+			end = offsets[i+1]
+			if op := opcode.Opcode(b[offsets[i+1]]); op != opcode.INITSLOT {
+				end += 2
+				b[offsets[i+1]] = byte(toShortForm(op))
+			}
 		}
 		copy(b[start-copyOffset:], b[start+3:end])
 		copyOffset += longToShortRemoveCount
diff --git a/pkg/compiler/debug_test.go b/pkg/compiler/debug_test.go
index b5dfbd121..fbcef22d3 100644
--- a/pkg/compiler/debug_test.go
+++ b/pkg/compiler/debug_test.go
@@ -73,7 +73,9 @@ func _deploy(data interface{}, isUpdate bool) { x := 1; _ = x }
 	c := newCodegen(info, pkg)
 	require.NoError(t, c.compile(info, pkg))
 
-	buf := c.prog.Bytes()
+	buf, err := c.writeJumps(c.prog.Bytes())
+	require.NoError(t, err)
+
 	d := c.emitDebugInfo(buf)
 	require.NotNil(t, d)
 
diff --git a/pkg/compiler/defer_test.go b/pkg/compiler/defer_test.go
index d9b39ea07..2cabbed13 100644
--- a/pkg/compiler/defer_test.go
+++ b/pkg/compiler/defer_test.go
@@ -137,3 +137,14 @@ func TestRecover(t *testing.T) {
 		eval(t, src, big.NewInt(5))
 	})
 }
+
+func TestDeferNoGlobals(t *testing.T) {
+	src := `package foo
+	func Main() int {
+		a := 1
+		defer func() { recover() }()
+		panic("msg")
+		return a
+	}`
+	eval(t, src, big.NewInt(0))
+}
diff --git a/pkg/compiler/func_scope.go b/pkg/compiler/func_scope.go
index 672b839ef..e466f8bec 100644
--- a/pkg/compiler/func_scope.go
+++ b/pkg/compiler/func_scope.go
@@ -2,7 +2,6 @@ package compiler
 
 import (
 	"go/ast"
-	"go/token"
 	"go/types"
 )
 
@@ -34,9 +33,6 @@ type funcScope struct {
 
 	// deferStack is a stack containing encountered `defer` statements.
 	deferStack []deferInfo
-	// finallyProcessed is a index of static slot with boolean flag determining
-	// if `defer` statement was already processed.
-	finallyProcessedIndex int
 
 	// Local variables
 	vars varScope
@@ -59,6 +55,11 @@ type deferInfo struct {
 	expr         *ast.CallExpr
 }
 
+const (
+	finallyVarName   = "<finally>"
+	exceptionVarName = "<exception>"
+)
+
 func (c *codegen) newFuncScope(decl *ast.FuncDecl, label uint16) *funcScope {
 	var name string
 	if decl.Name != nil {
@@ -102,114 +103,6 @@ func (c *funcScope) analyzeVoidCalls(node ast.Node) bool {
 	return true
 }
 
-func (c *codegen) countLocalsCall(n ast.Expr, pkg *types.Package) int {
-	ce, ok := n.(*ast.CallExpr)
-	if !ok {
-		return -1
-	}
-
-	var size int
-	var name string
-	switch fun := ce.Fun.(type) {
-	case *ast.Ident:
-		var pkgName string
-		if pkg != nil {
-			pkgName = pkg.Path()
-		}
-		name = c.getIdentName(pkgName, fun.Name)
-	case *ast.SelectorExpr:
-		name, _ = c.getFuncNameFromSelector(fun)
-	default:
-		return 0
-	}
-	if inner, ok := c.funcs[name]; ok && canInline(name) {
-		sig, ok := c.typeOf(ce.Fun).(*types.Signature)
-		if !ok {
-			info := c.buildInfo.program.Package(pkg.Path())
-			sig = info.Types[ce.Fun].Type.(*types.Signature)
-		}
-		for i := range ce.Args {
-			switch ce.Args[i].(type) {
-			case *ast.Ident:
-			case *ast.BasicLit:
-			default:
-				size++
-			}
-		}
-		// Variadic with direct var args.
-		if sig.Variadic() && !ce.Ellipsis.IsValid() {
-			size++
-		}
-		innerSz, _ := c.countLocalsInline(inner.decl, inner.pkg, inner)
-		size += innerSz
-	}
-	return size
-}
-
-func (c *codegen) countLocals(decl *ast.FuncDecl) (int, bool) {
-	return c.countLocalsInline(decl, nil, nil)
-}
-
-func (c *codegen) countLocalsInline(decl *ast.FuncDecl, pkg *types.Package, f *funcScope) (int, bool) {
-	oldMap := c.importMap
-	if pkg != nil {
-		c.fillImportMap(f.file, pkg)
-	}
-
-	size := 0
-	hasDefer := false
-	ast.Inspect(decl, func(n ast.Node) bool {
-		switch n := n.(type) {
-		case *ast.CallExpr:
-			size += c.countLocalsCall(n, pkg)
-		case *ast.FuncType:
-			num := n.Results.NumFields()
-			if num != 0 && len(n.Results.List[0].Names) != 0 {
-				size += num
-			}
-		case *ast.AssignStmt:
-			if n.Tok == token.DEFINE {
-				size += len(n.Lhs)
-			}
-		case *ast.DeferStmt:
-			hasDefer = true
-			return false
-		case *ast.ReturnStmt:
-			if pkg == nil {
-				size++
-			}
-		case *ast.IfStmt:
-			size++
-		// This handles the inline GenDecl like "var x = 2"
-		case *ast.ValueSpec:
-			size += len(n.Names)
-		case *ast.RangeStmt:
-			if n.Tok == token.DEFINE {
-				if n.Key != nil {
-					size++
-				}
-				if n.Value != nil {
-					size++
-				}
-			}
-		}
-		return true
-	})
-	if pkg != nil {
-		c.importMap = oldMap
-	}
-	return size, hasDefer
-}
-
-func (c *codegen) countLocalsWithDefer(f *funcScope) int {
-	size, hasDefer := c.countLocals(f.decl)
-	if hasDefer {
-		f.finallyProcessedIndex = size
-		size++
-	}
-	return size
-}
-
 func (c *funcScope) countArgs() int {
 	n := c.decl.Type.Params.NumFields()
 	if c.decl.Recv != nil {
diff --git a/pkg/compiler/function_call_test.go b/pkg/compiler/function_call_test.go
index ef2fd8c61..60935cbbe 100644
--- a/pkg/compiler/function_call_test.go
+++ b/pkg/compiler/function_call_test.go
@@ -306,7 +306,10 @@ func TestJumpOptimize(t *testing.T) {
 	require.NoError(t, err)
 	require.Equal(t, 6, len(di.Methods))
 	for _, mi := range di.Methods {
-		require.Equal(t, b[mi.Range.Start], byte(opcode.INITSLOT))
+		// only _deploy and init have locals here
+		if mi.Name.Name == "_deploy" || mi.Name.Name == "init" {
+			require.Equal(t, b[mi.Range.Start], byte(opcode.INITSLOT))
+		}
 		require.Equal(t, b[mi.Range.End], byte(opcode.RET))
 	}
 }
diff --git a/pkg/compiler/inline.go b/pkg/compiler/inline.go
index f3471863b..d3653941b 100644
--- a/pkg/compiler/inline.go
+++ b/pkg/compiler/inline.go
@@ -32,7 +32,12 @@ func (c *codegen) inlineCall(f *funcScope, n *ast.CallExpr) {
 	if c.scope == nil {
 		c.scope = &funcScope{}
 		c.scope.vars.newScope()
-		defer func() { c.scope = nil }()
+		defer func() {
+			if cnt := c.scope.vars.localsCnt; cnt > c.globalInlineCount {
+				c.globalInlineCount = cnt
+			}
+			c.scope = nil
+		}()
 	}
 
 	// Arguments need to be walked with the current scope,
diff --git a/pkg/compiler/inline_test.go b/pkg/compiler/inline_test.go
index bf62e65a3..46db2cece 100644
--- a/pkg/compiler/inline_test.go
+++ b/pkg/compiler/inline_test.go
@@ -30,7 +30,7 @@ func checkCallCount(t *testing.T, src string, expectedCall, expectedInitSlot int
 		}
 	}
 	require.Equal(t, expectedCall, actualCall)
-	require.Equal(t, expectedInitSlot, actualInitSlot)
+	require.True(t, expectedInitSlot == actualInitSlot)
 }
 
 func TestInline(t *testing.T) {
@@ -47,34 +47,34 @@ func TestInline(t *testing.T) {
 	t.Run("no return", func(t *testing.T) {
 		src := fmt.Sprintf(srcTmpl, `inline.NoArgsNoReturn()
 			return 1`)
-		checkCallCount(t, src, 0, 1)
+		checkCallCount(t, src, 0, 0)
 		eval(t, src, big.NewInt(1))
 	})
 	t.Run("has return, dropped", func(t *testing.T) {
 		src := fmt.Sprintf(srcTmpl, `inline.NoArgsReturn1()
 			return 2`)
-		checkCallCount(t, src, 0, 1)
+		checkCallCount(t, src, 0, 0)
 		eval(t, src, big.NewInt(2))
 	})
 	t.Run("drop twice", func(t *testing.T) {
 		src := fmt.Sprintf(srcTmpl, `inline.DropInsideInline()
 			return 42`)
-		checkCallCount(t, src, 0, 1)
+		checkCallCount(t, src, 0, 0)
 		eval(t, src, big.NewInt(42))
 	})
 	t.Run("no args return 1", func(t *testing.T) {
 		src := fmt.Sprintf(srcTmpl, `return inline.NoArgsReturn1()`)
-		checkCallCount(t, src, 0, 1)
+		checkCallCount(t, src, 0, 0)
 		eval(t, src, big.NewInt(1))
 	})
 	t.Run("sum", func(t *testing.T) {
 		src := fmt.Sprintf(srcTmpl, `return inline.Sum(1, 2)`)
-		checkCallCount(t, src, 0, 1)
+		checkCallCount(t, src, 0, 0)
 		eval(t, src, big.NewInt(3))
 	})
 	t.Run("sum squared (nested inline)", func(t *testing.T) {
 		src := fmt.Sprintf(srcTmpl, `return inline.SumSquared(1, 2)`)
-		checkCallCount(t, src, 0, 1)
+		checkCallCount(t, src, 0, 0)
 		eval(t, src, big.NewInt(9))
 	})
 	t.Run("inline function in inline function parameter", func(t *testing.T) {
@@ -84,7 +84,7 @@ func TestInline(t *testing.T) {
 	})
 	t.Run("global name clash", func(t *testing.T) {
 		src := fmt.Sprintf(srcTmpl, `return inline.GetSumSameName()`)
-		checkCallCount(t, src, 0, 1)
+		checkCallCount(t, src, 0, 0)
 		eval(t, src, big.NewInt(42))
 	})
 	t.Run("local name clash", func(t *testing.T) {
@@ -110,6 +110,11 @@ func TestInline(t *testing.T) {
 	})
 	t.Run("globals", func(t *testing.T) {
 		src := fmt.Sprintf(srcTmpl, `return inline.Concat(Num)`)
+		checkCallCount(t, src, 0, 0)
+		eval(t, src, big.NewInt(221))
+	})
+	t.Run("locals, alias", func(t *testing.T) {
+		src := fmt.Sprintf(srcTmpl, `num := 1; return inline.Concat(num)`)
 		checkCallCount(t, src, 0, 1)
 		eval(t, src, big.NewInt(221))
 	})