Increase in deficit in 2013 draft state budget is useful and safe, says adviser to NBU head

The increase in the budget deficit target for 2013 to UAH 50.4 billion, or 3.2% of projected GDP, which was proposed by the government in the draft state budget for 2013, is both safe and beneficial, as it will stimulate domestic demand, the head of the group of advisors to the National Bank governor, Valeriy Lytvytsky, has said.

"2013 should be a year of moderate monetary accommodation - expanding the money supply, but within safe limits. The proposed increase in the budget deficit lies within such policy, which is aimed at stimulating domestic demand," he told Interfax-Ukraine.

The advisor to the NBU governor said that this year the monetary aggregates are moving within such parameters, which rule out the formation of excessive monetary mass transferred for next year. This creates enough space for a new impetus to increase money supply in order to use it to resuscitate crediting.

"We need a policy of stimulating the economy through monetary and, in particular, budgetary steroids," Lytvytsky said.

He said there has been a relaxation in monetary policy all around the world since the 2008 crisis. At present, this issue is particularly relevant in Ukraine, since the growth of its economy has virtually halted, and the pressure of inflation remains at its record low, he said.

The NBU governor's advisor believes that the deficit proposed by the government is not dangerous for prices, and fits within the inflation forecast for 2013 at 4.8%, as envisaged in the budget.

He also welcomed the intention to finance the deficit mainly through domestic borrowing.

"This gives a chance to increase the role of interest rate policy and work with securities, as well as increase the share of refinancing in money supply," Lytvytsky said.

At the same time, he said that in addition to the need to focus on domestic demand, they needed to make every effort to increase the presence of Ukrainian exports on foreign markets, primarily in Russia and Europe, as well as maximize the benefits of participation in the WTO.