Ukraine to Reduce 2009 Budget Gap

KIEV -- Ukraine's 2009 budget deficit is to be cut to 1.4 percent of gross domestic product from 2 percent this year, Finance Minister Viktor Pynzenyk said Saturday.

Pynzenyk, addressing a Cabinet meeting, also said spending on servicing and repaying state debt in 2009 would hit a record level of 28.2 billion hryvnas ($5.81 billion).

Prime Minister Yulia Tymoshenko briefly addressed the meeting, but she made no mention of Saturday's deadline to reconstitute the Orange coalition underpinning the country's pro-Western leadership after its collapse last week.

"The budget deficit is to stand at 1.4 percent of GDP," Pynzenyk told ministers. "Budget revenue in 2009 is to be 285 billion hryvnas ... expenditure is to stand at 302.4 billion hryvnas."

Pynzenyk said budget parameters had been calculated based on indicator forecasts issued by the government last week.

Those forecasts put 2009 inflation at 9.5 percent against 15.9 percent this year and growth at 6 percent of GDP, compared with 6.8 percent in 2008. The foreign trade gap is expected to widen to $25.3 billion next year from $15.4 billion in 2008.

The meeting sought to finalize the 2009 budget for submission to parliament by Monday, as required by Ukrainian law.

Regarding debt, Pynzenyk said the country faced risks because of its expected rise in payments, particularly over revenue from privatization and unfavorable conditions for borrowing on world markets.

Ukraine's privatization program is in disarray, with only about 10 percent of receipts realized amid disputes over sell-offs between Tymoshenko and President Viktor Yushchenko -- a one-time ally with whom she is now in conflict.

"Next year, we will see a peak in spending on servicing and paying back the state debt -- 28.2 billion hryvnas -- of which 56 percent concerns foreign debt," Pynzenyk said.

"The first risk is linked to the budget deficit. The State Property Fund has not produced a single proposal for privatization, and most of the financing for the deficit is to come from privatization.

"If this is to be replaced with new borrowing, this will place a further strain on the budget."

Pynzenyk added that global economic conditions could "affect the development of Ukraine's economy given the importance of exports. It could affect GDP growth rates and budget revenues."

He made no mention of the price the government expects to pay for imported gas from Russia and Central Asia -- a subject of frequent disputes with Moscow since 2005.

Russian officials suggest that the price might leap to $400, from $179.50 now. An official from the president's secretariat said it had concluded that the government was assuming a 40 percent rise.

With politicians issuing no new proposals on patching up the ruling coalition of political groups led by Tymoshenko and Yushchenko, Ukraine faced a period of deepening political certainty.