Ukraine agreed with the International Monetary Fund on Friday to implement tighter fiscal policies next year and draft a low-deficit budget for 2006, officials said on Friday. The liberal government appointed seven months ago by President Viktor Yushchenko, is struggling with weakening growth and accelerating price rises.
An IMF fact-finding mission this week singled out inflation as the main macroeconomic challenge this year and urged the government to curb growth in money supply and loosen up the exchange rate.
IMF Managing Director Rodrigo Rato, who held two days of talks with officials, restated this view and said he had heard reassuring words from Yushchenko, Prime Minister Yulia Tymoshenko and other officials.
"We agreed that the immediate challenge for the government is to lower inflation while helping to re-launch sustained growth," Rato told reporters after talks with Tymoshenko.
"In my view, this requires, in the first place, a co-ordinated and well-communicated macroeconomic strategy on how to achieve these objectives."
He said the strategy included a prudent fiscal stance in 2005 and 2006, tighter monetary conditions and an improved investment climate.
Tymoshenko said the government was working on next year's budget in line with IMF recommendations. "We came to joint conclusions that we should form a budget for next year with a minimal deficit, significant spending on development, based on a policy with a broader tax base and reduced taxes," she told the joint news conference.
"Our co-operation with the IMF is important now. It will produce decisions needed for the new administration. We agreed to hold constant consultations between IMF officials and the government to keep our finger on the pulse."