By Natalia Zinets and Gabriela Baczynska
KIEV Dec 19 Ukraine expects economic growth of
3 percent in 2014, a draft budget showed on Thursday, days after
Russia offered a $15 billion lifeline to help revive its smaller
neighbour's economy and keep the country in its orbit.
Ukraine's economy has shrunk for the last five quarters and
Ukraine had been seen at risk of default before Tuesday's deal
between Kiev and Moscow, under which Russia will offer cheaper
gas supplies and buy up $15 billion of Ukrainian bonds.
The parliament in Kiev was due to consider the government's
proposed 2014 budget later on Thursday although a formal vote
may not take place. The bill envisages spending of 447 billion
hryvnia ($55.9 billion) with revenues of 392 billion hryvnia and
a budget deficit of 3.6 percent of gross domestic product.
Kiev needs cash to cover an external funding gap of $17
billion in 2014 - almost the level of the central bank's
currency reserves, depleted by efforts to support the hryvnia
and repay foreign debt - and has won some breathing space with
the Moscow bailout.
Ukrainian Prime Minister Mykola Azarov on Wednesday hailed
the aid from Moscow as a "historic development" and vowed
reforms to modernise the ex-Soviet economy and revive growth.
After a 0.2 percent expansion in 2012, Kiev has forecast
economic growth of at least 2.5 percent in 2013. But with
negative readings in the first three quarters, analysts expect
the economy to shrink by some 0.5 percent this year.
FEARS OF STAGNATION
The Moscow deal upset protesters who have been camped on
Kiev's main Independence Square for a month after President
Viktor Yanukovich unexpectedly ditched a planned trade agreement
with the European Union in favour of closer ties with Russia.
Speaking at his wide-ranging annual press conference in
Moscow, President Vladimir Putin on Thursday defended the aid
for "brotherly" Ukraine, financed from Russia's rainy day funds,
saying he believed in Kiev's competitive advantage.
Critics of Yanukovich's decision to tie Ukraine closer to
its Soviet-era overlord say the alliance will delay much-needed
reforms and prolong the country's economic woes by pumping cash
into a bankrupt system rather than enforcing modernisation.
"To assume 3 percent of GDP growth, that is an overly
optimistic indicator because there is no real foundation for
economic growth, or higher investments," said Vasyl Yurchyshyn,
economy expert at the Razumkov Centre think-tank in Kiev.
"The government believes cheap gas and trade relations with
Russia will allow higher growth," he said. "But the business
remains uncompetitive, the so-called cheap gas delays energy
The draft budget assumes Ukraine will need to borrow 151.9
billion hryvnia next year, 114.9 billion hryvnia of which it
intends to raise on the domestic market.
The proposal compares to a 2013 budget which saw revenues of
370.6 billion hryvnia and spending at 419.8 billion.
"The $15 billion in aid from Moscow is only enough to plug
the biggest holes in the ship," said a Western diplomatic
source. "Pushing back the necessary reforms is never the choice
of a good householder. It only means several more years of