KIEV, Oct. 20 – President Viktor Yushchenko warned Tuesday that Ukraine’s budget deficit has reached a “critical” level and now poses a threat to social and political stability in the country.

Yushchenko, addressing the Consultative Council on Foreign Investments, a body that advises the government on investment policy, estimated the budget deficit at up to 130 billion hryvnias.

“In fact, this is 50% of the budget,” Yushchenko said. “This is the key challenge for prices and for stability as such, I mean social stability and political stability.”

Yushchenko has earlier criticized the government for not adjusting the 2009 budget to the economic crisis that has been reducing revenue as businesses close down activity.

The level of budget deficit had so far been estimated by the presidential office at up to 70 billion hryvnias, but the new estimate puts the deficit at twice as much.

Ukraine’s economy contracted 20.3% on the year in the first quarter and 18% on the year in the second quarter reacting to collapsing external demand for steel, the country’s main exports.

The contracting economy reduced budget revenue significantly, but the government of Prime Minister Yulia Tymoshenko had refused to amend the budget due to little political support in Parliament.

Ukraine is dependent on the $16.4 billion loan from the International Monetary Fund that was approved in November 2008 for being able to meet its debt payments this year and next.

The fate of the next loan installment of up to $3.4 billion is unclear as the government has failed to implement most of the agreed reforms and that could delay the installment, analysts said.

“Obviously, the level of budget revenue collection will be catastrophically low,” Yushchenko said. “Under the budget like that key social programs without a doubt will face the risk of being postponed.”

Yushchenko criticized the government for delaying value added tax rebates to exports and collecting taxes fro other companies ahead of time as a way of boosting revenue this year.

The debt on tax rebates stands at 20 billion hryvnias, while the tax collection ahead of time generated 12 billion hryvnias, Yushchenko said.

“These are two main things are lead to the cooling of the economy,” Yushchenko said. “This is the policy of the crisis.”

Yushchenko urged the government to amend the budget, and said the IMF – by insisting on conditions for the loans – may force the government to start the reforms.

“I will repeat this again and again: getting out of the crisis means to conduct deep and radical reforms,” Yushchenko said. (tl/ez)