KIEV, Oct. 26 – The government’s poor budget and fiscal policies have resulted in a “colossal” debt burden on Ukraine that will have a serious impact next year, President Viktor Yushchenko said on Monday.

Yushchenko, who will seek re-election in January, has opposed the government’s policy for two years, but the latest criticism comes two days after Prime Minister Yulia Tymoshenko formally announced plans to run for the presidency.

“One of common features of the current government is the rapid increase in debts,” Yushchenko said in a statement released by his press service. “The poor debt policy, caused by desire to receive pre-election dividends, creates a situation that will result in colossal debt burden.”

Ukraine’s total debts rose to 205.4 billion hryvnias as of the end of August, up from 130.7 billion hryvnias as of the end of December 2008 and 71.3 billion hryvnias as of the end of December 2007, according to the presidential office.

Tymoshenko became the prime minister in December 2007.

Ukraine’s economy contracted by 20.3% on the year in the first quarter and 17.8% on the year in the second quarter, but the government has refused to revise the 2009 budget to reduce the deficit.

Ukraine, which now depends on $16.4 billion two-year Standby loan from the International Monetary Fund approved in November 2008, has so far received $10.6 billion – an equivalent of 90 billion hryvnias at the current exchange rate - that had gone to support the budget.

The government hopes to get the next installment of $3.4 billion from the Washington-based lender next month, but the IMF has recently voiced concerned with slow pace of reforms and with plans to further boost social spending.

Yushchenko said the refusal to adjust the spending and the focus on borrowing - coupled with the devaluation of the hryvnia over the past 12 months - had resulted in the fact Ukraine’s debts have increased dramatically.

Tymoshenko has long been refusing to admit that the government’s budget revenue had dropped significantly this year and has been releasing reports suggesting the government has been raising budget revenue in line with forecast.

Yushchenko has accused the government of manipulations with finances, including delays with tax rebates to exporters as well as asking big state-owned taxpayers to pay taxes early in order to shore up the government’s spending.

The rising debts will force the government to spend 150% more on debt servicing in 2010 compared with 2009, according to Yushchenko.

For example, in December 2010 Ukraine will have spend 7 billion hryvnias on servicing foreign debts only, and that accounts for a third of the country’s expected monthly revenue next year.

“The policy like that is causing risks for state finances and is pushing our country away from exiting the economic crisis,” Yushchenko said. (tl/ez)