Fitch Ratings has upgraded Ukraine’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) to ‘B’ from ‘B-‘, the outlooks are positive, according to a report on the rating agency’s website.
“Ukraine has demonstrated timely access to fiscal and external financing, improving macroeconomic stability and declining public indebtedness, while a shortened electoral period has reduced domestic political uncertainty. Expected macroeconomic policy continuity, the new government’s strong stated commitment to structural reforms and engagement with IFIs mean that Fitch expects further improvements in creditworthiness,” the report says.
“President Volodymyr Zelensky’s strong popular support and his party’s control of government and parliament provide the government with a uniquely strong position to move ahead with its reform-minded policy agenda. After a commanding victory in the second round of presidential elections, the president’s party Servant of the People (SOP) obtained control of the Verkhovna Rada (256 out of 450 seats) in snap parliamentary elections (originally scheduled for end October). The recently formed government under Prime Minister Oleksiy Honcharuk includes technocratic, pro-western and reform-minded ministers. Key economic policy makers such as Minister of Finance Oksana Markarova remain in their positions, supporting the continuity of policies underpinning reduced macroeconomic imbalances and improved stability,” Fitch said.
“The new prime minister intends to negotiate a new and longer program with the IMF, possibly an Extended Fund Facility (EFF), in the near term. The high likelihood of continued IMF engagement will facilitate access to official and market financing to meet large sovereign debt repayments in 2020-2021, and serve as an anchor for policies and reforms that could potentially lift growth prospects,” the agency experts stated.
“Prudent fiscal management, stable growth, declining interest rates and moderate exchange rate depreciation pressure will support continued government debt reduction. We expect government debt to decline to 47.9% of GDP (55.8% including guarantees) by end-2019, down almost 20 p.p. from the peak of 69.2% (80.9% including guarantees) in 2016 and below the current 57.5% ‘B’ median, and reach 44.4% by 2021. Government debt dynamics are highly exposed to currency risk as 67% is foreign currency denominated, but greater non-resident participation in the local bond market will help increase the share of local currency debt and extend maturities,” according to the document
“The long-awaited increase in Ukraine’s credit rating was made possible thanks to macroeconomic stabilization, a decrease in government debt and a reduction in political risks. This means that confidence in Ukraine is growing, and the risks associated with our creditworthiness are decreasing. And most importantly, the cost of borrowing will decrease,” Finance Minister of Ukraine Oksana Markarova said.
S&P Global Ratings affirmed its ‘B-/B’ long- and short-term foreign and local currency sovereign credit ratings on Ukraine. The outlook is stable. “While the economy is growing and inflation is on a downward path, the financing outlook is uncertain for government foreign currency redemptions beyond 2019, when Ukraine will have to negotiate a fresh agreement with the International Monetary Fund (IMF),” S&P said.
Ukraine faces sizable external debt repayments against the backdrop of presidential and parliamentary elections in 2019.
The stable outlook reflects our expectation that Ukraine will broadly comply with the terms of the $3.9 billion IMF stand-by arrangement, potentially with some delays.
Ratings pressure could build if disruptions to funding from concessional programs or capital market access over the next year call into question Ukraine’s ability to meet large external repayments over the remainder of the year and in 2020.
“An adverse final ruling in Ukraine’s legal battle with Russia over a Eurobond issued in December 2013, and held by Russia, could have implications for Ukraine, in our opinion. Such a ruling could be some years away. However in a worst-case scenario, it might create technical constraints for Ukraine’s ability to repay its commercial debt held by other creditors, which would pressure the ratings. We note that the government believes there is no potential for technical constraints on debt service, even in the case of an adverse ruling in the future,” S&P said.
“We could consider a positive rating action if we see improvements in growth, fiscal and external imbalances beyond our expectations, and if we conclude that the security situation in the non-government-controlled areas in the East of the country has stabilized and further escalation is unlikely,” S&P said.
Fitch Ratings has affirmed Ukraine’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B-‘. The Outlook is Stable, Fitch has said in a press release. In addition, Long-Term Foreign-Currency IDR affirmed at ‘B-‘; Outlook Stable; Long-Term Local-Currency IDR affirmed at ‘B-‘; Outlook Stable; Short-term foreign-currency IDR affirmed at ‘B’; and Short-term local-currency IDR affirmed at ‘B’. Country Ceiling affirmed at ‘B-‘.
Ukraine’s ratings balance weak external liquidity, a high public debt burden and structural weaknesses, in terms of a weak banking sector, institutional constraints and geopolitical and political risks, against improved policy credibility and consistency, the sovereign’s near-term manageable debt repayment profile and a track record of bilateral and multilateral support.
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