KIEV, Ukraine -- The International Monetary Fund signaled Friday that Ukraine was making progress toward receiving a second crucial installment of a $16.4 billion emergency loan after the aid program was frozen earlier this month.
The IMF said it was ready to reconsider its loan requirements and allow Ukraine to run a bigger budget deficit after the financial crisis grew worse.
The IMF had previously insisted that Ukraine trim the 2009 deficit from 3 percent to 1 percent of the GDP. But Ceyla Pazarbasioglu, the head of the IMF mission to Ukraine, said Friday that a balanced budget was impossible given the economy would contract by 6 percent or more this year and said the country could run a deficit as long it secures external funding.
"A balanced budget given a sharp decline in revenues does not seem feasible at this point in time," Pazarbasioglu told reporters in a conference call. "We are fully supportive of the authorities' efforts to raise additional funding from multilateral and bilateral creditors."
Prime Minister Yulia Tymoshenko, who is reluctant to cut social spending and upset voters ahead of elections this year, has turned to G-7 countries and Russia to help close the budget gap.
The IMF aid is critical to Ukraine, exposed as one of the most vulnerable to the global financial crisis.
Industrial output has slumped by over one-third and Ukraine's currency has lost nearly half of its value against the dollar. The hryvna continued falling Friday, closing at 8.7 to the dollar Friday, down 46 percent from 4.9 in September.
The crisis has been exacerbated by constant feuds among Ukraine's political leaders.
On Friday, however, Tymoshenko, President Viktor Yushchenko, and parliament speaker Volodymyr Lytvyn pledged they would work together to come up with anti-crisis measures and policy changes in the coming days and present them to the IMF.
Pazarbasioglu praised the effort. "The authorities are putting together their own anti-crisis package and measures and that is very encouraging," she told reporters.