KIEV, Dec. 23 – Ukraine may face new economic challenges, including difficulties in paying foreign debt, with the approval of the 2009 budget draft proposed by Prime Minister Yulia Tymoshenko, President Viktor Yushchenko warned Tuesday.

Yushchenko has urged the approval of a deficit-free budget, but Tymoshenko suggested on Monday that her budget draft will anticipate a deficit of at least 2% of gross domestic product.

“From the point of the view of the budget, I can say frankly that this is the budget of the crisis,” Yushchenko said at a press conference. “It does not provide a decent, honest, non-populist exit from this situation.”

The government has been making emergency changes to the budget draft, originally submitted to Parliament in September, after the hryvnia had lost 43% of its value against the dollar over the past three months.

Parliament must approve the budget before the end of December to avoid delays in government spending in January. Lawmakers seek to debate, and perhaps to approve, the draft on Thursday.

“It’s sad that the nation got used to idea that the budget is the subject of dreams by one person who has been using her unique actress skills to paint a cloud,” Yushchenko said in remark apparently aimed at Tymoshenko. “Parliament is put in a situation that it does not have a choice.”

Tymoshenko’s draft forecasts the revenue based on the assumption that Ukraine’s economy will grow at least 0.4% on the year in 2009.

Most of independent economists see Ukraine’s economy contracting at least 3% on the year in 2009, suggesting actual budget revenue will be lower and the deficit larger.

Finance Minister Vikor Pynzenyk, a member of the Tymoshenko Bloc, clashed with the prime minister last week, suggesting the budget is too optimistic, according to people familiar with the situation.

Yushchenko, who met Pynzenyk repeatedly over the past several days, confirmed the reports.

“This is the first budget that the finance minister is not willing to be responsible for,” Yushchenko said.

Tymoshenko said Monday that money raised to finance the deficit will be channeled to the stabilization fund “to support the real sector of the economy.”

Yushchenko, who two months ago had suggested to create the stabilization fund worth several billion U.S. dollars, said linking it to the budget deficit was non-sense.

“The idea of the stabilization fund, as a locomotive, as a generator, was buried,” Yushchenko said. “The [budget] deficit is in stabilization fund. These are the expenses that there is no money to pay for.”

Yushchenko also criticized Tymoshenko for recently attacking the National Bank of Ukraine for alleged attempts to manipulate the exchange rate between the hryvnia and the dollar.

“This is destruction of the state,” Yushchenko said. “This show that we view since Friday, those attacks against the financial system led to colossal problems on our foreign debts.”

“You’re not going to hear a word ‘default’ from my mouth. No way. I will not let this happen,” Yushchenko said. “But day after day response to this questions becomes harder and harder to make.” (tl/ez)