Fitch Affirms Ukraine at ‘B-‘; Outlook Stable

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Ukraine’s ratings balance weak external liquidity, high external financing needs driven by sovereign external debt repayments, a weak banking sector, institutional constraints and political risks in relation to peers, against improved policy credibility and consistency, improving macroeconomic stability, declining government debt and a track record of bilateral and multilateral support, Fitch Ratings reports.

Ukraine’s continued engagement with the International Monetary Fund (IMF) has eased financing constraints and supported the recovery in international reserves. Ukraine received the first disbursement (USD1.4 billion) under the 14-month Stand-By Arrangement (SBA) in December and expects to receive two USD1.3 billion disbursements after completion of reviews in May and November 2019. In addition, the sovereign issued a USD2 billion Eurobond in October, received the first tranche (EUR500 million) under the EU Macro-financial Assistance Program (MFAP) and obtained a EUR 349 million loan using part of a World Bank USD750 million guarantee. 

International reserves rose to USD20.8 billion at the end of 2018, the highest level since 2012. Nevertheless, reserve coverage, at 3.1 months of CXP, remains below the current ‘B’ median of 3.4 months. Increased exchange rate flexibility, unlocking of external financing through the new IMF programme and moderate external imbalances mitigate near-term pressures on international reserves.

Timely compliance with the new IMF programme is key to facilitate external financing, support progress in macroeconomic stability and mitigate vulnerabilities related to weak external liquidity, the potential for increased domestic political uncertainty and broader emerging markets volatili

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