December 25, 2015 / 2:52 AM / 2 years ago

Ukraine backs 2016 budget with deficit agreed with IMF

KIEV (Reuters) - Ukraine’s parliament approved a budget for 2016 on Friday, a key condition to secure the next tranche of financial aid under a $17.5 billion International Monetary Fund loan package as the embattled country teeters close to bankruptcy.

The International Monetary Fund (IMF) logo is seen at the IMF headquarters building during the 2013 Spring Meeting of the International Monetary Fund and World Bank in Washington, April 18, 2013. REUTERS/Yuri Gripas

Lawmakers had approved a series of laws before the budget vote, including an amendment to tax laws, reducing the tax on employers and unifying the tax rate on personal income.

They also increased excise duties on tobacco, fuel and alcohol with the aim of balancing the budget.

Voting was delayed while deputies debated those amendments required for the budget. Some argued they unfairly increased prices for Ukrainians, many of whom are already struggling to make ends meet as the economy teeters on the edge of bankruptcy.

The International Monetary Fund has said it was critical to approve a budget in line with the Fund’s bailout program. It was not immediately clear whether the approved document met all the requirements of the IMF.

Parliament backed the government’s proposal to adopt the budget with the deficit at 3.7 percent of GDP, the figure agreed with the IMF.

The IMF had warned lawmakers that an approved budget consistent with the aid program’s objective of reducing the general government deficit to 3.7 percent of GDP was a key condition for its completion.

It said “approval of a budget that deviates from program objectives for 2016 and the medium-term will interrupt the program and inevitably disrupt the associated international financing”.

Ukraine had promised to revamp its tax system under the IMF program but the tax amendments adopted on Thursday were only temporary steps and Kiev was still planning to approve a new tax code.

Ukraine has already received almost $10 billion this year from the IMF and other international lenders to shore up its finances, which were crippled by separatist conflict and years of economic mismanagement and corruption.

Analysts said disagreement in parliament over critical tax reforms and the draft budget could hold up the disbursement of a third $1.7 billion tranche from the IMF at a time when divisions in the ruling coalition had raised concerns the government could fall.

They said failure to pass the tax reforms and budget could also hold up $2.7 billion in international financing for this year, in addition to the IMF loan tranche.

Reporting by Pavel Polityuk; Editing by Paul Tait

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