Fitch Ratings affirms Ukraine's long-term credit rating at 'B' with a stable outlook

Source : 112 Ukraine

A 'B' rating is speculative and reflects significant credit risk, with a financial safety cushion
16:37, 28 February 2021

Fitch Ratings
Open source

The international Fitch Ratings agency has affirmed Ukraine's long-term foreign-currency issuer default rating (IDR) at "B" with a stable outlook. This was reported by the press service of Fitch Ratings.

"Ukraine's 'B' IDRs reflect its track record of multilateral support and a credible macroeconomic policy framework that has underpinned a relatively high degree of resilience to the coronavirus shock. Ukraine's human development indicators compare favorably with the peer group, it has a net external creditor position of close to 13% of GDP, and general government debt is somewhat lower than the 'B' median," said in the message.

At the same time, it is noted that against the background of these factors, corporate governance indicators remain weak, the degree of legislative and judicial risk for the implementation of policies is high, and external liquidity, in comparison with the large requirements for servicing sovereign external debt, is at a low level.

The Stable Outlook reflects expectations for gradual fiscal consolidation and continuation of macroeconomic policies that helped preserve broad stability in external finances during last year's shock. The ability to issue Eurobonds and available domestic liquidity have provided some limited space to manage a delay over the next six months in completing the first review of the IMF stand-by arrangement (SBA).

The coronavirus shock temporarily reversed improvements made in recent years in terms of a declining debt burden and normalization of growth prospects after the 2014-15 geopolitical and economic crises.

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At the same time, the political position of the administration has weakened somewhat and recent Constitutional Court policy reversals further underline the risks to SBA compliance, which constrain the rating.

The progress of the US $ 5 billion reviews of the IMF's SBA program for Ukraine is progressing slowly compared to the first review, and Fitch believes that its completion carries significant risks.

In particular, parliamentary approval of anti-corruption and judicial reform legislation will be problematic. The IMF's previous actions in these areas were partly a response to Constitutional Court rulings that limited the powers of the national anti-corruption agency and removed criminal liability for false asset declarations.

Fitch Ratings sees slightly less risk of implementation of another important new SBA requirement concerning the lifting of the December temporary gas price cap.

The SBA program review has already been postponed due to IMF concerns about the change of the head of the National Bank of Ukraine (NBU) in July.

The agency predicts GDP growth in Ukraine by 4.1% in 2021 due to private consumption, growth in agricultural production and a partial recovery of investments. However, Fitch expects inflation to continue to rise to 6.9% by the end of 2021, which will return to its target of 5.3% at the end of 2022.

By the way, the "B" rating belongs to the speculative category. For issuers and deferred securities, 'B' ratings indicate significant credit risk, but a limited safety net remains. Financial commitments are being met, but the ability to continue making payments depends on a stable and favorable business and economic environment.

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