(AP) The International Monetary Fund drastically darkened its economic outlook for Ukraine on Friday as it gave tentative approval for a $3.3 billion installment of a rescue loan the country needs to avoid a total economic meltdown.
The IMF predicted the former Soviet republic’s economy will
shrink by 14 percent this year, far worse than the 8 percent it had forecast
earlier.
IMF mission chief Ceyla Pazarbasioglu said the fund’s board
will make a final decision on allocating funds – the third installment of the
$16.4 billion loan – in early August. She urged the government to push ahead
with stabilization measures.
“The policies that have been implemented by the
government and the Central Bank allowed the country to manage the crisis and
led to stability in the financial system,” Pazarbasioglu said at a joint
news conference with Prime Minister Yulia Tymoshenko.
Pazarbasioglu said the bleak economic forecast is largely
attributable to a steep downturn in the first half of this year and expressed
hope that the economy would pick up soon. Industrial output shrank by 32
percent in the first five months of the year, according to government data, as
global demand for metals and chemicals, the country’s main export commodities,
continued to decline.
The fund also revised its target for the budget deficit this
year from 4 to 6 percent, mainly to account for financial troubles at the state
energy company Naftogaz, squeezed by a hike in the price for Russian natural
gas imports.
Pazarbasioglu said the Ukrainian authorities have committed
to the unpopular measure of regularly increasing prices for hot water and
heating for households in order to help cover Naftogaz’s expenses.
Tymoshenko said that $1.9 billion of the third installment
will be used to cover Ukraine’s external borrowings which mature this year, seeking
to allay concerns that the country would be unable to pay.
Ukraine is one of the worst-suffering countries in Europe,
hit by a shrinking demand for its main export commodities. The national
currency, the hryvna, has lost about 35 percent of its value to the dollar
since last fall.
