Fitch revises Ukraine's outlook to positive, affirms at 'B'

Source : 112 Ukraine

Fitch forecasts the general government deficit narrows 1.7pp in 2021, to 4% of GDP
08:25, 7 August 2021

Fitch Ratings
Open source

International Fitch Ratings agency has changed the outlook for Ukraine's long-term foreign-currency issuer default rating (IDR) from "stable" to "positive" and confirmed the level of "B". This is stated in a review by Fitch Ratings, published on Friday, August 6.

"Ukraine's credit fundamentals have been relatively resilient to the coronavirus shock, and we expect public debt/GDP to fall in 2021 on the back of budget outperformance and recovering GDP. Foreign exchange reserves have trended up, and Ukraine has retained access to commercial and IFI external finance, despite uneven progress against the IMF stand-by arrangement (SBA). There has been a consolidation of the credible policy framework, underpinned by exchange rate flexibility, commitment to inflation-targeting, and prudent fiscal policy, which has supported greater macroeconomic stability and a marked reduction in general government debt since recovery from the 2014-2015 geopolitical and economic crises," reads the review.

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Fitch forecasts the general government deficit narrows 1.7pp in 2021, to 4% of GDP, below the government state deficit target of 5.1% and the 'B' median deficit of 6.2%. The state budget deficit fell sharply in 1H21 to 1.8% of GDP (annualised) with 1pp of revenue outperformance, and a larger expenditure under-execution, which we assume reverses in 2H21. However, there is somewhat greater reliance on government guarantees in this year's budget, totalling close to 1.8% of GDP. New tax-raising measures for 2022, which are yet to receive legislative approval, amount to 0.9% of GDP, helping offset recurrent expenditure pressure, and we project the general government deficit falls further to 3.2% of GDP in 2022, and 2.9% in 2023.

Near-term financing risks have reduced somewhat. Government cash holdings of USD2.0 billion at end-July (82% of which are in foreign-currency) were helped by issuances of Eurobonds in April and July totalling USD1.75 billion, and resumption of non-resident inflows into the domestic market of USD1 billion (0.6% of GDP) in 1H21. In addition, Ukraine's IMF special drawing rights allocation of USD2.7 billion and available liquidity in the domestic banking sector provide more financing space to meet higher budget needs in the remainder of 2021 (including USD2.2 billion external amortisation in September).

Related: World Bank to allocate $350 million to Ukraine to restore economy

As reported before, European Bank for Reconstruction and Development (EBRD) predicted the growth of the economy of Ukraine in 2021 by 3.5%. The document stated that the EBRD predicted the growth of Ukraine’s GDP by 3.5% in 2022.

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