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Ukraine agrees budget with IMF, funding seen from May

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April 2, 2010, 2:56 p.m. | Business — by Reuters

An IMF mission visited Ukraine this week and said progress had been made in talks to resume a suspended $16.4 billion bail out for the cash-strapped ex-Soviet republic.

Reuters

Ukraine expects to have a new International Monetary Fund programme in place in May and has agreed on the size of the budget deficit, seen as a key sticking point in talks, Prime Minister Mykola Azarov said on Friday. An IMF mission visited Ukraine this week and said progress had been made in talks to resume a suspended $16.4 billion bail out for the cash-strapped ex-Soviet republic.

But the size of the state budget deficit had remained a key problem, with the IMF pressing for fiscal prudence and the government committed to social spending initiatives.

"We have reached an agreement on the key issue of the state budget. We have agreed that the state budget deficit could be within the limits of around 6 percent (this year)," Azarov told reporters.

"A memorandum will be prepared in April and then will be signed. After that the board of directors meeting on a new programme will take place. We expect that in May we will resume the cooperation with IMF," he added.

Kiev officials have indicated they were seeking a deficit figure of 10 percent, suggesting the IMF was won concessions from the government on the headline number.

In 2009, the deficit was around 14 percent, Azarov said.

Some $6 billion of the suspended IMF package is yet to be distributed to Ukraine, whose economy shrank 15 percent in 2009. The programme was suspended late last year when then President Viktor Yushchenko approved a rise in minimum wages and pensions despite earlier undertakings to the IMF not to do so.

Negotiations resumed with the election of Viktor Yanukovich as President in February. Ukraine's new leaders have signalled that resuming cooperation with the IMF -- either by restarting the old programme or agreeing a new one -- is a priority. But they also want to go ahead with social spending plans.

Hopes of more cash from the IMF have cheered investors, sending yields on Ukraine's 2016 dollar bondbelow 7.5 percent -- levels not seen since mid-2008 -- and boosting demand at auctions of domestic debt.
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