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Fitch affirms Ukraine "B " rating


Fitch retained its April forecast, according to which Ukraine's economy will contract by 6.5% in 2020, but in 2021 it will grow by 3.8%, and in 2022 - 3.5%.

Fitch affirms Ukraine "B " rating

The international rating agency Fitch Ratings has affirmed Ukraine's long-term foreign currency issuer default rating (IDR) at "B " with a stable outlook.

"Ukraine's ratings reflect its credible macroeconomic policies, which have reduced inflation and narrowed the budget deficit to a coronavirus-induced shock, as well as a history of international support, " the agency said in a release on Saturday night.

At the same time, Fitch points out that these strengths are opposed by low external liquidity, high funding needs associated with repaying large sovereign debt, a vulnerable albeit improving banking sector, and weak corporate governance indicators.

"The shock of the coronavirus, at least temporarily, has reversed the improvements Ukraine has made in recent years in terms of reducing its debt burden, normalizing growth prospects after the geopolitical and economic crisis of 2014-2015 ... " - adds the agency .

According to Fitch estimates, Ukraine has met almost 68% of its 2020 fiscal funding needs of $ 23.5 billion. The agency expects the allocation this year of another tranche under the IMF stand by program ($ 0.7 billion) and the first tranche of a new EU macro-financial assistance loan for EUR 1.2 billion, which, together with the available domestic liquidity and balances of the State Treasury, provide opportunities to meet the remaining financial needs.

Fitch forecasts Ukraine's international reserves at the end of 2020 at $ 27.4 billion, up from $ 29 billion in early September.

"Continuing interaction with the IMF is key for Ukraine to maintain access to external financing. However, the risks of implementing the IMF stand by program are significant, given Ukraine's poor reputation for implementing previous programs and potential court decisions and legislative initiatives that lead to a rollback of reforms ", - says the release.

According to Fitch, unexpected and frequent changes in government at the beginning of the year, especially in key economic positions such as finance minister, and political pressure on the NBU leading to the head's resignation in July, create political uncertainty. "In addition to undermining hard-earned confidence in politics, declining central bank independence could lead to a rollback in macroeconomic and financial stability, limit access to external financing and increase Ukraine's vulnerability to shocks, " the agency notes.

The agency expects inflation to approach the NBU target of 5% by the end of 2020, 5.3% next year, and 5.7% in 2022.

Fitch retained its April forecast, according to which in 2020 Ukraine's economy will contract by 6.5%, but in 2021 growth will be 3.8%, and in 2022 - 3.5%. "However, the risks of deterioration of our forecasts remain, given the uncertainty over the magnitude and duration of the coronavirus outbreak, "the agency said.

Fitch predicts that the consolidated budget deficit will reach 6.5% of GDP in 2020 and gradually narrow to 5.4% of GDP in 2021 and 4.2% in 2022.

According to the agency's estimates, Ukraine's national debt will increase from 44.4% last year (with guaranteed debt - 50.5%) to 57.4% of GDP (65.1%) this year and 60% by 2022.

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