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S&P lowers Ukraine foreign currency rating to CCC-, outlook negative

December 19, 2014, 22:27 UTC+3 MOSCOW
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MOSCOW, December 19. /TASS/. Standard & Poor's Ratings Services on Friday lowered its long-term foreign currency sovereign credit rating on Ukraine to 'CCC-' from 'CCC', and its long-and short-term local currency ratings to 'CCC+/C' from 'B-/B', S&P said in a statement.

“At the same time, we affirmed the foreign currency short-term sovereign credit rating at 'C'. The outlook is negative,” the ratings agency said. “We also lowered the Ukraine national scale rating to 'uaB+.”

“We had previously anticipated that IMF disbursements would be paid to Ukraine in 2014, but these have been delayed. In our view, this delay, coupled with significantly reduced foreign currency official reserves, increases the risk that the Ukrainian government might not be able to meet its obligations,” S&P said.

“A default could become inevitable in the next few months if circumstances do not change, for instance if additional international financial support is not forthcoming,” the statement said.

“Full disbursement of the IMF program and related multilateral lending, which is meant to enable the government to meet its foreign currency obligations over the next year, has not been running to schedule. The second and third tranches of the program were not disbursed as expected in 2014,” it said.

“The timing of the next disbursement - a combined $2.7 billion disbursement of the second and third tranches - remains unclear, at this point,” the statement said.

“While the formation of a new pro-reform government, following the October parliamentary elections, supports a continuation of the IMF program, we consider that the program itself remains at risk of not going ahead: Ukraine's macroeconomic outlook has deteriorated and, as a result, external financing needs are greater than we previously expected,” it said.

“There have been significant deviations from the program's base-case assumptions,” S&P said.

“The negative outlook on the ratings reflects our view that there are significant risks of Ukraine defaulting if additional financial support is not forthcoming. Any further substantial delay in IMF disbursements would make it extremely difficult for the government to meet its debt obligations in the short term,” it said.

“We note that, even with continued disbursements, the program only buys Ukraine a limited amount of time. Further significant depreciation of the exchange rate, a more severe recession, and larger-than-expected deterioration of the fiscal and external balances, would place a lot of pressure on Ukraine's ability to meet its gross financing needs without additional international financial support,” the statement said.

“The ratings could improve if additional financing was provided, sufficient to enable Ukraine to meet its external financing needs over the next year,” S&P said.

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