KIEV, Nov. 8 - President Viktor Yushchenko on Wednesday stepped up pressure on the government to reduce the planned budget deficit next year amid concerns the wider gap would increase borrowing needs and may spur inflation.
Oleksandr Shlapak, the chief of the economic department at the presidential office, said the "maximum level" of the budget deficit must be 2% of the GDP, not 2.55% planned by the government.
The presidential office also believes that Ukraine's economic growth will probably slow down to between 4.2% and 4.5% on the year in 2007, compared with 6.5% forecast by the government.
The slower-than-expected economic growth means the government would probably raise less money from taxes and that may further widen the budget deficit.
The concerns about the 2007 budget increase chances that the president may eventually reject the bill in a major setback for the government.
The pro-government coalition approved the 2007 budget draft in the first reading earlier this month and must approve the bill in two more readings before it is submitted to the president.
The comment adds pressure on Prime Minister Viktor Yanukovych's government that has been already facing several serious macroeconomic challenges, such as skyrocketing inflation.
Ukraine's consumer prices rose 2.6% on the month in October, the highest monthly inflation over the past six years, mostly due to the hike in power and natural gas prices.
The figure boosted cumulative consumer price index increase to 8.7% in January through the end of October, dashing the government's hopes of keeping inflation below 10% in 2006.
The government has been originally predicting inflation at 8.7% in 2006, but natural gas prices hikes have forced the government to revise the forecast to about 10%.
Viktor Pynzenyk, a former finance minister, said the extremely high pace of consumer price growth in September and October suggests that inflation will probably hit 14% in 2006.
Shlapak said the presidential office believes the inflation may be contained at 11%, but said the concerns are that consumer prices will shoot out to 13% in 2007, compared with 7.5% forecast by the government.
The Yanukovych government has been in talks with oil companies over the past two months seeking to force them to cut gasoline prices, a step that the government believes would slow down inflation. The higher inflation pressure may encourage the government to hold similar talks with other companies.
"We put the question urging [producers] to lower prices of consumer goods, including foodstuffs," Yanukovych said. "We have tools and the power to seek lower prices."
"I always say that we have to look in the eyes of each other," Yanukovych said. "Then we will find understanding." (nr/ez)