Risks Remain in Ukraine: Fitch Ratings

Business Materials 7 November 2008 12:57 (UTC +04:00)

Azerbaijan, Baku, 7 November / Trend , corr. N.Ismaylov / the International Monitory Fund (IMF) will support Ukraine, but risks remain, the Fitch Ratings reported on 7 November.

Fitch Ratings says the IMF Executive Board's approval of a two-year stand-by arrangement (SBA) for Ukraine of $16.4bn, with immediate disbursement of $4.5bn, provides both vital financial support and an anchor of a well designed economic policy program for the country. However, downside risks to creditworthiness persist. Ukraine is rated Long-term foreign and local currency Issuer Default 'B+ with Negative Outlook.

"The substantial foreign currency finance and the attached policy conditions bolster Ukraine's financial position and prospects for putting its economy and financial system back on a sustainable footing," said Andrew Colquhoun, Director in Fitch's Sovereigns Group. "However, even with the IMF's SBA, the risks to Ukraine's macroeconomic and financial stability remain elevated as the economy faces a painful adjustment, which will test the authorities' commitment to sustain implementation of the IMF program".

The SBA is intended to support a strategy to restore macroeconomic and financial stability in Ukraine. The program envisages a recession in Ukraine, with real GDP falling 3% in 2009, and a rapid fall in the current account deficit to 2% in 2009, from 6% in 2008. Inflation is expected to fall to 17% in 2009, from 26% in 2008.

Ukraine's private-sector short-term debt totalled $28bn at end-June 2008, and Fitch estimates Ukrainian borrowers may have to refinance $19bn of longer-term debt falling due in 2009. Deposit switching into FX and/or capital flight could put further pressure on Ukraine's external finances. Fitch notes the immediate IMF disbursement of USD4.5bn will not restore all the reserves lost in October's currency turbulence.

Worsening economic prospects and requirements for further official support to the economy could erode Ukraine's fiscal strength in the medium term.

The correspondent can be contacted at: [email protected]