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S&P revises Ukraine outlook to stable from negative

July 11, 2014, 21:43 UTC+3 MOSCOW
The ratings agency said events in eastern Ukraine and the deterioration of relations with Russia make for an unpredictable external balance
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MOSCOW, July 11. /ITAR-TASS/. Standard & Poor’s Ratings Services has revised its outlook on Ukraine to stable from negative and affirmed its 'CCC/C' long-and short-term foreign currency sovereign credit ratings and 'B-/B' long- and short-term local currency sovereign credit ratings on Ukraine, the agency reported Friday.

“The stable outlook reflects our view that the $17 billion two-year International Monetary Fund (IMF) program adopted in April 2014 has helped stabilize the deteriorating macroeconomic situation in Ukraine,” S&P said. “However, we consider that significant risk attends full disbursement of funds under the program.”

“These risks include the impact of the conflict in Eastern Ukraine on the country's territorial integrity and available resources, the difficult and unpredictable relationship with Russia, and the deepening recession,” it said.

The example of Crimea - a region that did not recognize the authorities imposed during a coup in Ukraine in February and seceded from the country to accede to Russia in March - apparently inspired residents of Ukraine’s Southeast, who supported the country’s federalization. The residents started massive protests and formed militias.

The Donetsk and Lugansk regions bordering Russia held referendums on May 11, in which most voters supported independence from Ukraine. South Ossetia has recognized the self-proclaimed Donetsk People's Republic and the Luhansk People's Republic. No other countries have followed suit so far.

Kiev has been conducting a military operation against federalization supporters, which has already claimed hundreds of lives, destroyed buildings and forced tens of thousands to flee Ukraine, for nearly three months.

“The Russian Federation incorporated Crimea into its own territory in March 2014, but Ukraine's official statistics still include Crimea. Although we expect this unilateral step by Russia to have a limited impact on the overall economy and balance of payments, events in eastern Ukraine and the deterioration of relations with Russia make for an unpredictable external balance,” S&P said.

Despite Moscow’s repeated statements that the Crimean referendum on secession from Ukraine was in line with the international law and the UN Charter and in conformity with the precedent set by Kosovo’s secession from Serbia in 2008, the West and Kiev have refused to recognize the legitimacy of Crimea’s reunification with Russia.

“The stable outlook balances our view that the IMF program should remain broadly on track despite significant uncertainties regarding the geopolitical situation,” the international ratings agency concluded.

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