The U.S. credit rating agency Fitch Ratings upgraded Ukraine’s debt ratings due to timely debt repayments and economic stability.
On Sept. 6, the firm raised Ukraine’s long-term foreign, and local currency debt from a grade of ‘B-‘ to ‘B,’ saying that the outlook for the country is positive.
“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,” Fitch wrote in its statement.
The firm pointed to the ascendance of President Volodymyr Zelensky and his party’s control of government as a key driver of confidence. The government now has a strong position to move ahead with a reformist policy agenda.
“The recently formed government under Prime Minister Oleksiy Honcharuk includes technocratic, pro-western and reform-minded ministers,” the firm stated.
Fitch expects the government debt to decline to 47.9 percent of GDP by the end of 2019, down from a peak of 69.2 percent in 2016 and below the 57.5 grade ‘B’ median.
At the same time, the firm sees a high likelihood of Ukraine’s cooperation with the International Monetary Fund. Honcharuk intends to negotiate a new, longer program with the IMF, which can be helpful in meeting the large sovereign debt repayments in 2020-2021. Ukraine faces some of its most onerous debt repayment periods in 2019-2021.
Fitch outlined several risks, including Ukraine’s “weak track record” in completing previous programs, negative court rulings that might set back reforms and the chance that the president’s Rada representation might fragment due to powerful vested interests.
Fitch also expects average inflation to decline to 8.5 percent in 2019, and 5.7 percent in 2021. The National Bank of Ukraine made more optimistic predictions last week, expecting inflation to go down to 5 percent by the end of 2020.
“Prudent fiscal management, stable growth, declining interest rates and moderate exchange rate depreciation pressure will support continued government debt reduction,” the statement reads.
Ukraine’s Minister of Finance Oksana Makarova wrote in a Facebook post that Fitch praised Ukraine’s achievments, transparency, and the new political cycle headed by Zelensky, the new Rada and Honcharuk.
“This is how the restoration of confidence looks,” Makarova’s wrote, adding that this will lead to cheaper long-term domestic and international lending.
Fitch, in turn, praised Markarova’s steady policies that reduce macroeconomic imbalance.
