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S&P raises Ukraine’s credit rating

March 24, 2010

The Standard & Poor’s ratings agency has raised Ukraine’s sovereign credit rating for bonds in foreign currencies from CCC+/3 to BC, and the sovereign credit rating for bonds in the domestic currency from BC to B/B. The forecast for both ratings is positive.

“We believe that the formation of a new ruling coalition and Cabinet of Ministers in Ukraine opens the road to better coordination of policy and reviving cooperation with the International Monetary Fund (IMF,” says S&P credit analyst Franklin Gill.

If Ukraine receives further financing under the IMF program worth US $4 bn, this could go a long way to helping Ukraine improve its monetary and economic stability, finance its Budget this year, and to improve the fiscal state of the national pension system and Naftogaz, the state company. The agency notes that raising the rating reflects a higher likelihood that the coordination of political efforts will improve in terms of reviving the economy and especially in stabilizing the Budget. Although some provisions of the agreement between Ukraine and the IMF might need adjustment, the renewal of tranches will make it possible to speak more confidently about achieving political and macroeconomic stability.

“We believe that increasing investor confidence, which affects inflows foreign direct investment, and more active refinancing of external government bonds will lead to a better balance of payments on Ukraine’s current account,” says the S&P statement.

“This positive forecast reflects the likelihood that interactions between the new Government and the Presidential Administration will improve to achieve a more balanced Budget and provide continuing support for stability in the financial sector, which has been hit hard by this crisis, and in the real economy,” says Mr. Gill.

“In addition, this forecast reflects the likelihood that after the last round in the election we will see the next phase in the political cycle and key top officials in the country will be shuffled less than was the case in the last six years,” says Mr. Gill. “This would reduce the risk that financial decisions will continue to be based on political motives.”

The positive forecast indicates the growing impact of factors that should encourage better ratings over 2010–2011, provided that pressure on the Budget and the balance of payments in the country is eased.

Tags: IMF, economy