Ukraine To Miss IMF Deficit Target, Akimova Says

KIEV, Ukraine -- Ukraine will probably run a state budget deficit of as much as 7 percent of gross domestic product this year, almost double the level demanded by the International Monetary Fund.

Iryna Akimova

Ukraine wants to resume cooperation the Washington-based lender to unfreeze a $16.4 billion bailout loan that was suspended in November after the government failed to cut spending and adopt a 2010 state budget. The IMF is requiring the budget gap to be cut to 4 percent of GDP.

“We had a budget deficit of almost 12 percent of GDP last year, so to run the deficit of 4 percent this year is impossible,” Iryna Akimova, the first deputy head of staff to President Viktor Yanukovych, said today at a press conference in Kiev. “We are aiming at a deficit not wider than 6 percent to 7 percent.”

Ukraine relies on external financial aid as the global financial crisis and recession cut demand for its exports such as steel, dried up investments and weakened the currency. The economy contracted 15 percent last year, the deepest decline since 1994.

IMF Mission

An IMF mission to reviews the cooperation program may come by the end of month, when the government, which took power last month, will work out this year’s budget, Akimova said. A resumption of the IMF loan will open the way for a 500 million euro European Union loan that may be used to cover the state budget deficit.

“Complicated talks with the IMF are ahead of us,” said Akimova. “Still, I hope the IMF will understand our situation. We will show that that we are committed to further cuts in mid- term.”

Ukraine’s economy may expand as much as 3.1 percent in all of 2010, while inflation may be “a little bit slower than 13 percent,” Akimova said, adding that changes to utility tariffs will be a determining factor in the inflation rate.

The IMF has said the country must raise natural gas prices for households, which have been frozen since late 2008.

Source: BusinessWeek