Ukraine wants to agree a new two-year programme with the International Monetary Fund, Deputy Prime Minister Sergey Tigipko said on Wednesday, but key points of contention between the fund and Kiev have already appeared.
The ex-Soviet republic has been drawing on a $16.4 billion bailout programme from the IMF but this was suspended last year after Kyiv backed away from pledges to hold down social spending and raise household gas prices to support the budget.
A mission from the IMF arrived late on Tuesday for ten days of talks with the new Ukrainian government on resuming the suspended bailout. Tigipko indicated Kyiv disagreed with some conditions — on gas price increases and the budget deficit.
He did not make it clear whether he wanted a new programme to replace the current one or to follow it. There is $6 billion left to disburse from the current programme, which began in November 2008 and has been twice delayed already.
"Ukraine would like to have a new medium-term programme with the IMF over two years," Tigipko told journalists. Earlier, he said talks with the fund would be tough.
"We will discuss all questions. We have to agree positions on the 2010 budget and renew the programme. These will not be easy negotiations. We have 10 days before us," he said.
The IMF is likely to demand that household gas prices, heavily subsidised by the government, are raised, that minimum wage increases passed by parliament last year are scrapped and that a 2010 budget is passed with a deficit of about 4 percent of gross domestic product (GDP).
But Tigipko said despite a high average price that Ukraine will have to pay for Russian gas imports the government could get away without raising domestic prices.
He said Ukraine is expected to pay $334 per 1,000 cubic metres on average this year, higher than the price in the first quarter of $305 per tcm and than last year’s average price which the former government estimated to be at $228 per tcm.
"One thing I can say — $334 is an extraordinarily high price, but with such a price according to finance ministry preliminary calculations we can more or less balance our budget without especially raising prices in the domestic sector," Deputy Prime Minister Sergey Tigipko said on Wednesday.
He also said the 2010 budget deficit could be 4.5-5.0 percent of GDP, minus any financial support for Naftogaz which last year amounted to about an extra 1-2 percentage points.
He said the budget deficit last year reached 6.6 percent.
The government, in drawing up its budget, sees economic growth of 3.7 percent after a contraction of 15 percent in 2009, inflation of 13.1 percent against 12.3 percent last year and a hryvnia currency rate of 8.0/$ — similar to the current rate.
