5 Nov 2009 12:51

IMF anxious about Ukrainian 2010 budget

KYIV. Nov 5 (Interfax) - The submission by the Ukrainian government of an expansionary 2010 budget and the new social standards law signed by the president are not in line with the liabilities undertaken by Kyiv in cooperation with the International Monetary Fund (IMF), says IMF Mission Chief to Ukraine Ceyla Pazarbasioglu.

"Our recent mission to Ukraine found that policies in some areas, including the submission of an expansionary 2010 budget and the new social standards law, threaten these gains," she said in an interview with the IMF Survey online published on Wednesday.

If the social standards law is implemented as voted, it could cost as much as 7% of GDP in 2010, Pazarbasioglu said.

"Even with a change in the law as suggested by the president - which would limit indexation to low-wage workers - we estimate the cost will be as much as 2.5% of GDP, a very large addition to Ukraine's budget deficit," she said.

"However you calculate it, the country simply cannot afford this."

Moreover, she said, the Ukrainian government has submitted a draft 2010 budget that would lead to a deficit of almost 8% of GDP, far above program commitments. (3-4% of GDP, Interfax-Ukraine note).

"We stand ready to continue our help, of course, should Ukraine choose to go on with the program and implement the policies needed now to build on the early gains," Pazarbasioglu said. "But there is serious disagreement among the authorities on how to proceed. We hope that they can shortly reach consensus. "

The IMF Mission Chief said that protecting the poor, the unemployed, and the most vulnerable is a priority for the fund. "A sizable part of our funding has been directed toward ensuring timely payment of wages and pensions by the government," she added.

"But we need to face reality-the availability of financing places clear limits on spending increases," she said. "In 2010, the government committed to raise wages and pensions in line with expected inflation. This would imply a 10% increase."

"A larger increase cannot be financed without resorting to inflation or significant downsizing of the public sector workforce," she added.