By Natalya Zinets
Reuters
Kyiv, Ukraine
15 Jan 2003 13:33 GMT

KIEV, Jan 15 (Reuters) - Ukraine's economic growth more than halved over the last year as the government failed to implement vital reforms and officials on Wednesday painted a bleak outlook for 2003, saying expansion could slow further.

Finance Minister Mykola Azarov told a government meeting that gross domestic product growth slowed to 4.1 percent in 2002 compared with a 9.1 percent rise in the previous year.

"I am pleased to note that we saw steady growth and real GDP growth totalled 4.1 percent in 2002," Azarov, who is also a deputy prime minister, told a government meeting.

The government has said industrial output growth halved to seven percent last year from 14.2 percent in 2001 with officials blaming the slower pace of expansion on a global economic slowdown, which hit exporters.

Anatoly Halchynsky, head of the central bank council and an economic adviser to President Leonid Kuchma, said reforms were needed to boost growth.

"In 2001 growth was about nine percent, last year it was four percent. If this trend continues, if we do nothing or do it inefficiently using only administrative measures, then we will see growth of between 2.5 and three percent (in 2003)," Halchynsky told a news conference.

Officials and economists say Ukraine's economy should grow by at least six percent yearly for the state to be able to close a gap with its more developed neighbours in Central Europe.

The government had planned for six percent GDP growth this year but analysts say the target is too optimistic as the country could face an uphill battle to control its budget deficit and meet foreign debt payments which peak in 2003.

"From the economic point of view, this year will be one of the most difficult in the last three or four years," Halchynsky said, adding the major challenges would be to keep the budget deficit under control and efficiently manage the debt situation.

Exporting companies have been the major driver behind Ukraine's economic recovery over the past two years due to a weak domestic market in the country of 49 million people.