The president and prime minister of Ukraine, at odds for months, offered on Tuesday to change next year's budget so that it complies with IMF conditions.
The budget sees a deficit of 3 percent of gross domestic product, despite an IMF stipulation that it should be balanced if Ukraine wants to receive the rest of a $16.4 billion loan to help it ride out an economic and financial crisis.
It has been criticised for its overly optimistic forecasts which skew the planned spending and revenues.
A letter signed by President Viktor Yushchenko and Prime Minister Yulia Tymoshenko, addressed to IMF chief Dominique Strauss-Kahn and posted on the presidential Web site acknowledged the budget “does not fully reflect specific indicators set down in the programme backed by the IMF”.
“Please rest assured that we intend to take decisive measures to ensure the programme is implemented, including adjustments to budget indicators, among them those concerning pension reform and disposable incomes,” it said.
The budget is set on the basis that the economy will grow 0.4 percent next year and inflation will be reined in to under 10 percent, going against an earlier economy ministry forecast of a recession of up to 5 percent.
Analysts too expect a deep recession and inflation of about 13-15 percent from about 22 percent now.
Parliament rejected the budget several times, and it has been criticised also by the president’s office. A long-running row between Yushchenko and Tymoshenko may mean that amending the budget will take some time.
Ukraine struck a deal with the IMF for the loan at the beginning of November just as the economy suffered a dramatic turnaround.
Growth shrank 14.4 percent in November year-on-year after industrial output fell almost 30 percent. A recession next year would put an end to robust growth of about 7 percent annually since 2000.
Falling exports, a fast widening current account deficit, as well as a lack of appetite for risky emerging markets, have sent the hryvnia currency into freefall.
Tymoshenko and parliament have demanded the dismissal of Central Bank Chairman Volodymyr Stelmakh although Yushchenko, who can sack him subject to parliament’s approval, has made no moves to do that.
At one stage the hryvnia last half of its value since September touching 10 to the dollar earlier this month, although it has since strengthened to about 7.7/$.
Other IMF conditions include central bank reserves targets, to stop Ukraine spending the money on just propping the currency up. Some of the loan, of which Ukraine has already received $4.5 billion, was also meant for shoring up the banking system. (Writing by Sabina Zawadzki; editing by Chris Pizzey)
