Ukraine's new government will tighten monetary and budget policies this year to cut the budget deficit and curb growing inflation, Finance Minister Viktor Pynzenyk said on Friday. Pynzenyk said the government intended to change the 2005 budget and would aim for a two percent deficit of gross domestic product this year and balanced budgets in future. "The budget deficit should be kept to a minimum," he told his first news conference since being appointed at the start of February. "When I say two percent, we are speaking about a figure which includes privatisation revenues."

Ukraine's export-led economy is enjoying a robust recovery largely unaffected by weeks of turmoil caused by the "Orange Revolution" of mass protests, which helped propel President Viktor Yushchenko to power.

The ex-Soviet state has a strong current account surplus thanks to favourable world markets for steel and chemicals, its major exports. And Yushchenko's victory has encouraged investors to pursue opportunities in the state of 47 million people.

But economic growth and investor interest depend on the government's ability to restore financial discipline, which went awry last year following wage and pension increases ordered by the previous leadership in the run-up to the poll.

Inflation jumped to a four-year high of 12.3 percent in 2004 after 8.2 percent in 2003. The budget deficit soared to a five-year high of $1.7 billion.

This year, the budget deficit could reach about six percent of gross domestic product unless the government takes measures to reduce it, Michael Deppler, head of the International Monetary Fund's European Department, told a news conference.

"There is general agreement that the outcome of 2004 was unsatisfactory and policies need to aim for a better outcome both on fiscal deficit and inflation," said Deppler, who led an IMF team on its first visit since the government took office. "Ukraine's success in the past has been built on sound public finances and low inflation."March.

Copyright Reuters, 2005