KIEV, March 31 – The government has suddenly decided to widen Ukraine’s 2010 budget deficit to 10% of GDP, up from 6% earlier planned, triggering a problem in talks with the International Monetary Fund.

The widening of the budget deficit comes days after Russia refused to lower natural gas prices, complicating the government’s desire to avoid painful gas price hikes for households.

“If we include everything that is being suggested, the deficit is projected at 10%,” Iryna Akimova, the top economic advisor to President Viktor Yanukovych, said Wednesday.

The comment explains why the talks with the IMF have stumbled, jeopardizing resumption of lending within the fund’s $16.4 billion two-year Stand-by loan.

Ukraine has recently indicated that it would seek to receive at least $5 billion from the IMF immediately in order to finance the budget deficit in 2010.

The latest policy initiatives of the government of Prime Minister Mykola Azarov have increasingly resembled the policy of former Prime Minister Yulia Tymoshenko, who had refused to hike domestic gas prices, using IMF money to cover a huge budget deficit.

The Tymoshenko government ran a budget deficit at whopping 12% of GDP in 2009, refusing to cut social spending and take other austerity measures.

Meanwhile, the plans to widen budget deficit to 10% of GDP in 2010, up from 6% previously suggested, led to a major problem in the on-going talks with the IMF.

The problem is so big that the IMF team, which is currently in Kiev, was not able to solve it, requiring further talks with senior IMF officials will be required.

Deputy Prime Minister Serhiy Tyhypko will shortly travel to Washington for the new round of talks to try to persuade the IMF to resume the lending.

“Right now there is the IMF team in Ukraine. It will work for two more days,” Tyhypko said at a press conference. “After that there will be my trip to Washington with a group of our experts, and we will continue the talks.”

The decision to widen the projected 2010 budget deficit comes days after Russia has refused to lower natural gas prices for Ukraine this year.

Lower gas prices was the key to avoiding domestic gas price hikes this year as Ukrainian households are paying 20% of market gas prices with the rest subsidized by the government.

Meanwhile, despite the failure to convince Russia to lower gas prices, the government has been still seeking to avoid household gas price hikes, a painful measure that may politically backfire.

“We are currently in talks with Russia, and I hope we will change the contracts to make sure that we don’t hike household gas prices,” Deputy Prime Minister Andriy Kliuyev said. “There is hope that we will be able to avoid the price hike. This is what we’re currently working on.” (tl/ez)