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S&P upgrades forecast for Ukraine to ‘stable’, confirms credit rating at B-

December 26, 2013, 15:30 UTC+3 KIEV
The stable outlook reflects its view the $15 billion in direct financing made public by Russia on December 18 should cover the Ukrainian government’s external financing needs over the next 12 months
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© EPA/JUSTIN LANE

KIEV, December 26. /ITAR-TASS/. Standard & Poor’s, the international ratings agency has upgraded its outlook for Ukraine from ‘negative’ to ‘stable’.

“On December 26, Standard & Poor’s Rating Services revised its outlook on Ukraine to stable from negative,” the agency says in a press release. “At the same time, we affirmed our ‘B-/B’ foreign and local long-term and short-term sovereign credit ratings on Ukraine.”

The press release says further that the stable outlook reflects its view the $15 billion, which is equivalent of about 8% of the GDP, in direct financing made public by Russia on December 18 should cover the Ukrainian government’s external financing needs over the next twelve months.

“With rollovers of trade financing and other private sector debts, we now expect Ukraine’s foreign currency reserves to stabilize, further supported by an additional agreement to reduce by about 30% the price at which (the national oil and gas monopoly) Naftogaz imports (natural) gas from Gazprom,” S&P says.

The press release says further that, according to the information available to the ratings agency, “Russia could revise this financial aid on a quarterly basis” — a factor that prompts the S&P analyst to conclude that “Russia will provide the support as it has outlined.”

The agency says along with it that “Ukraine’s financial dependence on Russia will increase if market conditions do not afford the government the opportunity to issue debt to international capital market participants other than Russia, or if other sources of financing are not found.”

“Based on our expectations of Russia’s support, we no longer expect a devaluation of the Ukrainian hryvnia,” the press release says. “We now use the baseline assumption that it will stabilize against the U.S. dollar at UAH 8.2 to USD 1 from the end-2013.”

As a result of it, S&P projects weaker economic growth, lower inflation and larger current account deficits through to 2016.

Among the factors putting constraints on the ratings, S&P underlines “political turbulence, economic decline, financial sector stress, and weak external liquidity.”

“We do not expect Ukraine to commit to significant broad-based reforms,” the agency says. “We expect little progress in areas such as fiscal consolidation, creating a more market-oriented domestic gas market, resolving non-performing loans in the financial sector or increasing exchange-rate flexibility.”

It warns that it might lower its ratings on Ukraine over the next twelve months “if the sufficiency and timeliness of Russian financial support were to become less certain or the political turmoil in Ukraine was to escalate to a significant degree.

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