KIEV, Feb. 12 – Finance Minister Viktor Pynzenyk, who recently warned the government that the economy was in terrible shape and the budget deficit exploding, resigned on Thursday, citing disagreements with Prime Minister Yulia Tymoshenko.

The resignation is the first political fallout of Tymoshenko’s reported refusal to cut budget spending dramatically despite a major reduction in budget revenue as Ukraine suffers from its worst economic crisis in two decades.

“In the current circumstances the professional position of the finance minister has become a hostage of politics,” Pynzenyk said in a statement. “The finance minister cannot change the situation, as well as cannot ignore his professional approach.”

The resignation must be approved by Parliament, and lawmakers are expected to get together at the next session on Tuesday.

Pynzenyk, and his Reforms and Order party, represent the pro-Western and liberal economic wing in the Yulia Tymoshenko Bloc. His resignation underscores Tymoshenko’s rapid drift towards controversial spending policy and increasing cooperation with Russia.

Pynzenyk’s resignation statement was posted on the Finance Ministry’s Website on Thursday afternoon. But one hour later access to the statement was blocked by the government’s IT staff.

Tymoshenko, when asked by reporters later Thursday to comment on Pynzenyk’s resignation, said “a new finance minister will be appointed in the near future.”

Pynzenyk first clashed with Tymoshenko in October 2008 over the forecast of the country’s economic growth in 2009. Tymoshenko insisted the economy will grow 0.4% on the year, while Pynzenyk has suggested the economy may shrink 5%.

A recent Pynzenyk memo suggested the forecast of 5% economic contraction now was “too optimistic” as economic crisis has deepened. Some analysts said the economy may shrink by 10%.

The contracting economy has been reducing budget revenue and without a major cut in spending, Ukraine’s budget deficit has been widening quickly.

The office of President Viktor Yushchenko estimated the budget gap at 7% of gross domestic product, or at about 79 billion hryvnias, suggesting that without spending cuts the economy may face a serious challenge.

Ukraine’s widening budget deficit was one of the key concerns at the International Monetary Fund, which may suspend its $16.4 billion loan to the country for the government’s refusal to cut spending.

Analysts said Tymoshenko has been refusing to cut spending and introduce other austerity measures amid fears of loosing public support ahead of the next presidential election due in January 2010.

Speaking about Pynzenyk, Tymoshenko mentioned his recent hospitalization as the main reason for quitting the job.

“Of course, not all bureaucratcs can withstand the challenges of the world economic crisis, not all can work in extreme conditions, not all can adequately react to the challenges,” Tymoshenko said. “That’s why the weakest leave their positions and go to do other things.” (tl/ez)