KIEV, March 30 – Talks between Ukraine and the International Monetary Fund over resumption of lending stumbled after the parties failed to reach a compromise on the country’s projected 2010 budget deficit, the finance ministry reported Tuesday.

The development reverses earlier comments by a top economic advisor to President Viktor Yanukovych that a principle agreement had been reached with the IMF over budget deficit target.

“Concerning the budget deficit and social standards figures the parties have failed to reach the agreement,” the finance ministry reported in a statement.

An additional meeting between IMF and government officials will be required soon to try to overcome the differences, the ministry said.

Ukraine seeks to borrow at least $5 billion from the IMF in the near future to be able to cover budget deficit in 2010, according to government officials.

Ukraine has also been seeking to negotiate a new lending program that would financially support the country during the next two years.

The failure to approve the 2010 budget before the deadline of December 2009 prompted the IMF to postpone its $16.4 billion two-year Stand-by loan late last year.

Yanukovych has ordered the government to draft and to approve the 2010 budget before April 11, which is widely regarded as a key condition for the IMF to resume the lending.

Ukraine, hit hard by the financial crisis, ran a budget deficit of up to 12% of the GDP in 2009, and the IMF is thought to have been demanding the deficit to be cut to 4% of the GDP in 2010.

But Iryna Akimova, the top economic advisor to Yanukovych, said earlier this week the government could only cut the budget deficit to 6% of GDP in 2010. He added the target had been essentially accepted by the IMF.

Deputy Prime Minister Serhiy Tyhypko and Finance Minister Fedir Yaroshenko met an IMF team in Kiev on Tuesday to convince on the suggested 2010 budget deficit targets.

The government suggested introducing special taxes on luxurious goods, cigarettes and alcohol, as well as boosting natural resource extraction royalties, to pay for greater budget deficit.

Ukraine’s economy is expected to expand 3.7% on the year in 2010, reversing a 15% contraction in 2009, according to a government forecast.

Tyhypko will be again meeting the IMF team on Thursday to try to iron out the differences before the team returns to Washington to decide on whether to resume the lending.

Prime Minister Mykola Azarov said the government has almost completed drafting the 2010 budget.

“I looked at its general features yesterday,” Azarov said after the meeting with the IMF. “It’s difficult, crisis budget.”

“But this is a realistic budget that will allow us to stabilize fiscal sector and to prepare reforms that we will be conducting as soon as this year, and mostly next year, Azarov said.

“I hope that the loan from the IMF would allow us to use these resources for conducting the reforms,” Azarov said. “There will not be ‘eating up’ of these resources anymore.” (tl/ez)