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Ukraine's draft budget far from perfect

Prime minister vows to meet external debt obligations.

By Daniel J. Graeber

KIEV, Ukraine, Dec. 29 (UPI) -- Though debt obligations to Russian energy company Gazprom were cleared, Ukraine's prime minister said Monday the budget for next year will be tight. Prime Minister Arseniy Yatsenyuk presented a draft budget in Kiev to members of the Verkhovna Rada, the nation's parliament. Like all previous budgets, he said, the latest revision is far from perfect.

"It will be difficult to collect revenues in modern Ukrainian economy - we have lost 20 percent of the state's economy," he said in his statement to lawmakers. "The year of 2015 will be very difficult in terms of economic stabilization."

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Political upheaval that saw Kiev move closer to the European Union in late 2013 left a weakened Ukrainian economy in shambles. With Soviet-era pipelines through Ukraine carrying about a quarter of the gas headed to the European markets, Ukraine's economic woes have spilled over into the energy sector.

Last week, Ukrainian energy company Naftogaz settled its debt to Russia's Gazprom with the transfer of $1.65 billion, the second such tranche this year.

The Ukrainian government under the terms of an October deal, brokered with the help of European negotiators, agreed to pay its $3.1 billion debt to Russian gas company Gazprom in installments. In return, Russia delivers gas under a pre-payment mechanism that extends through March.

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Yatsenyuk said a mandatory budget review is set for Feb. 15. The Ukrainian government, however, has fulfilled, and will continue to fulfill, its external debt obligations, he said.

"We will adjust it depending on the outcome of negotiations with international financial institutions," the prime minister said.

The draft budget has the support of the International Monetary Fund, which in mid-December said it recognized the difficult challenges presented by last year's upheaval.

An IMF team is expected to discuss the budget in Kiev in January.

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