Ukraine must cut budget deficit - Shlapak

15:51, 23 February 2009
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Agree on policies for IMF help

Ukraine must cut its state budget deficit by at least 2 percentage points of gross domestic product to get the second tranche of the $16.4 billion loan from the International Monetary Fund, said Oleksandr Shlapak, the first deputy head of president’s staff, Bloomberg reported.

“The IMF estimates this year’s Ukrainian state budget gap at 5 percent of GDP, excluding funds needed for the banks’ recapitalization,” Shlapak said today at a press conference in Kiev. “The IMF urged us to cut the deficit to 3 percent.”

Ukraine got the first $4.5 billion payment in November when it pledged to balance its 2009 state budget. Still, Ukrainian Prime Minister Yulia Timoshenko’s Cabinet plans a gap that would total 50 billion hryvnias ($6.26 billion), said Shlapak. It jeopardized terms for the second tranche that was expected on Feb. 15.

The global financial crisis is shaking emerging markets as credit and demand for their exports evaporated. It forced Ukraine, like Hungary and Iceland, to line up international aid to avert a default. A sharp contraction in Ukraine’s economy is aggravated by political struggles between Timoshenko and President Viktor Yushchenko over economy policies.

“We need to get a joint position on the economy and fiscal policies, and thus the president will meet with the premier and the central bank management this week,” said Shlapak. “After we reach it, we will ask the IMF mission to return to Ukraine as early as in the end of this week to discuss the second tranche.”

Change Procedure

The Washington-based lender also wants Ukraine to change the procedure for the banks’ refinancing and to strengthen the central bank’s independence, Shlapak said.

“We need to continue cooperation with the IMF because no one would invest here unless we get agreement with the fund,” said Shlapak.

The joint politicians’ position on economic policies will also help the hryvnia’s strengthening, Shlapak said.

Ukraine’s hryvnia lost 2.8 percent against the dollar last week because of uncertainty over the IMF tranche. It was trading at 8.3237 per dollar as of 2:21 p.m. in Kiev today, compared with 8.4000 on Feb. 20.

“The hryvnia devaluation is a result of people’s diffidence in economic policies,” said Shlapak. “If we have a joint position on the economy, the hryvnia will raise to at least 8 per dollar.”


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