Ukraine's economic growth in 2004 could reach 12.5 percent, says IMF (08/08/04)

Ukraine's economic growth in 2004 could reach 12.5 percent, says IMF

by Roman Woronowycz
Kyiv Press Bureau

KYIV - Ukraine's economic growth in 2004 could reach 12.5 percent, reported the International Monetary Fund in a statement released on August 3.

The IMF said it had revised its numbers upwards from an April forecast of 6 percent growth. Last year Ukraine's economy surged ahead by 9.4 percent.

The IMF stated that "buoyant exports and a surge in investment will boost Ukraine's real GDP growth." It noted that inflationary fears remain low, with current inflation projected at about 6 to 8 percent for the year.

Meanwhile, the Ukrainian government announced on August 2 that it had raised its own projections from 9.5 percent to 10.5 percent growth in 2004, a figure slightly less optimistic than the one presented by the IMF.

"We are observing a qualitative breakthrough. The economy is beginning to develop according to investment and innovation models," explained First Vice Prime Minister Mykola Azarov.

He noted that the government had seen foreign investment grow beyond expectations, with investments from abroad this year exceeding the $1 billion that foreigners put into the Ukrainian economy last year. He also explained that the Ukrainian marketplace was developing far more dynamically than could have been foreseen. He noted that the strongest growth would continue in the construction and machine-building sectors.

Mr. Azarov rejected any notion that inflation could hamper economic development. He said that the government expected an inflation rate in 2004 of no more than 5.8 percent to 6.3 percent.

Mr. Azarov also said he could not agree with a central criticism made by the IMF, which spent several days in Ukraine analyzing Ukraine's economic indicators before curtailing its mission. He said that he rejects the international financial institution's assertion that the government is playing too loosely with fiscal policy. He underscored that the 2004 budget contains no deficit, contrary to what IMF officials claimed, and that the results depended on how one added up the numbers.

"The issue is the methods of calculation. Our budget is fully covered by revenues," explained Mr. Azarov during a press conference on August 3 to respond to the IMF charges.

The IMF experts left Kyiv on July 30 after a 10-day stay, but before completing their review of Ukraine's economic performance as prescribed by a precautionary stand-by loan arrangement the international financial organization signed with Kyiv in March. The loan is valued at 411 million euros. The IMF team, led by Emmanuel van der Mensbrugghe, decided to halt its audit after it determined that slippages had occurred in fiscal policy.

While pointing out that Kyiv had made progress in broadening the tax base, as well as in reforming pensions, communal services and the tax administration, and had succeeded in passing civil and commercial codes, IMF officials noted that the country still needs to rein in 2004 outlays, tighten 2005 budget goals and curtail valued-added tax arrears. The IMF noted that a 1 percent budget deficit would be acceptable in 2005.

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