KIEV, Oct. 16 ??“ Prime Minister Viktor Yanukovych warned on Monday that the government??™s failure to sell state-owned assets this year will probably cause a significant shortfall in budget revenue and require unspecified measures in response.

The comments come as the government seeks to borrow up to $1 billion through an either 10-year or 30-year debt issue, suggesting the borrowing may further increase.

???Today, we don??™t have an opportunity to fulfill the budget due to the failure to raise money from privatization,??? Yanukovych said. He did not disclose any details, but the said the government will soon release its analysis of the problem.

The development suggests that the government has been facing greater financial problems that had so far been thought, and this may force the government to borrow more money.

The government planned to raise UAH2.1 billion from selling state-owned assets in 2006, but has persistently lagged behind the forecast amid delays in privatization auctions.

???The [target privatization revenue] is unlikely to be realized,??? Timothy Ash, an analyst at Bear Stearns International in London, said. ???We expect less than 25% of this to be achieved.???

The shortfall comes after the government disclosed plans to raise at least $1 billion from eurobonds before early November and may trigger further borrowing.

???This is likely to add another UAH1.5 billion [$300 million] to the external financing requirement,??? Ash said.

The government last week picked Credit Suisse, Deutsche Bank and UBS to help Ukraine borrow up to $1 billion by the end of the year to finance growing budget deficit.

The investment banks were selected at a tender as the government had been seeking to increase borrowing that it believes is instrumental for accelerating economic growth.

The government issued a CHF384 million 12-year eurobond last month.

The moves underscore Ukraine??™s return to capital markets in a dramatic reverse of the policy over the past 1.5 years, during which the government had been trying to cut debts.

Credit Suisse, Deutsche Bank and UBS were selected out of 10 investment banks that had responded to the government??™s invitation last month to join the tender, the ministry said.

The financial companies will charge Ukraine 0.025% of the size of the borrowing, or $25 million, if the banks help Ukraine to arrange a $1 billion eurobond.

The Finance Ministry was happy with the agreed payment, which it says was less what Ukraine had paid Citigroup, Deutsche Bank and UBS to arrange borrowing in 2005. (nr/ez)