IMF : Ukraine Current Account Deficit Seen Widening To 6.5% Of GDP – 4
05/29/2012 | 11:33am
Ukraine’s current account deficit is expected to widen to 6.5% of the country’s gross domestic product this year, as weaker demand for the country’s exports is seen slowing growth to around 3%, the International Monetary Fund said Tuesday after its annual economic review of the country.
The IMF warned that with considerable external financing needs that leave Ukraine vulnerable to volatile investment flows, Kyiv needs to institute policies “consistent with economic stability and steady progress in implementing a reform agenda in key reform areas.”
The fund said the Ukrainian government will need new measures to meet its deficit target of 1.8% of GDP, including possibly raising taxes for high earners, ending tax breaks and cutting the budget. Kyiv’s supplementary budget boosted wage and pension spending, though the government said it plans to meet those costs through higher revenue collection.
IMF economists said that while the country’s monetary policy is currently appropriate, greater flexibility of the hryvnia would better serve the country’s economy and provide a buffer for external shocks such as from the euro zone.
The fund also said that if Ukraine wants to achieve its ambitious goal of energy independence from Russia, it is essential to raise natural gas and heating prices for households. Raising prices will lower Naftogaz’s deficit, cut imports and free up resources for investment in domestic production, the fund said.
“We recommend significant upfront tariff increases and regular increases thereafter as part of a time-bound plan to eliminate subsidies,” the IMF said, adding that more money should be given to the poorest to offset their higher bills.
-By Ian Talley, Dow Jones Newswires, 202-862-9285; ian.talley@dowjones.com