Fitch Ratings, a leading international rating agency in the U.S., has improved Ukraine’s economic outlook from “stable” to “positive” according to a rating report published on Aug. 6.
Ukraine had previously struggled to move past a “stable” rating as it struggled to implement reforms, curb government debt and protect the economy from external shocks during the coronavirus pandemic.
However, the agency reported that Ukraine has been “relatively resilient to the coronavirus shock” and appears to be heading in the right direction.
“Ukraine’s credit fundamentals have been relatively resilient to the coronavirus shock, and we expect public debt to gross domestic product to fall in 2021 on the back of budget outperformance and recovering gross domestic product,” the report stated.
Ukraine’s flexible economic policy has underpinned what Fitch describes as a “credible policy framework” in the country.
Ukraine’s issuance of Eurobonds and its large cash reserves, totaling $1.75 billion and $2 billion respectively, have also slightly lowered financing risk, increasing stability.
“The banking sector has absorbed the pandemic shock better than initially expected and its credit fundamentals have improved in recent years,” the report read.
There may still be a chance for Ukraine to secure the next tranche of the International Monetary Fund’s conditional $5 billion, 18-month loan agreement this year, although that possibility is narrowing. Ukraine hasn’t received any money since an initial $2.1 billion installment because it has not met its conditions for the credit.
Separately, the International Monetary Fund (IMF) will give Ukraine $2.7 billion from a supplementary international reserve that has allocated $650 billion for 190 member-nation countries to combat the effects of a pandemic around the world.
Fitch Ratings also approved of Ukraine’s pending anti-oligarch legislation, which formally defines what an oligarch is and places restrictions on politicians’ relationships with them. The National Security and Defense Council (NSDC) also said it was ready to introduce temporary government takeovers at eight oligarch and pro-Russian lawmaker owned regional energy companies if their monopolies threaten the energy market.
The Fitch report also noted that attempts to reform the High Council of Justice, the judiciary’s highest body, show an appetite for reform.
Not all indicators are positive, however. Economic instability or falling international reserves could reverse much of the economic progress in Ukraine.
If Ukraine goes back on important reforms, it could find itself cut off from further IMF lending on which it relies.
The country’s tenuous geopolitical position has weakened its macroeconomic stability, because the conflict between Russia and Ukraine doesn’t show signs of resolution, according to the rating agency.
Ukraine has illustrated that the economy is continuing to reform, but still achieves a rating below that of Russia’s, which received a triple B rating and a “stable” outlook for 2021. Ukraine still has progress to make, as it ranks signficantly behind its neighbors such as Poland, which recently received an A- “stable” outlook.
