S&P affirms B- long-term rating, stable outlook for Ukraine

S&P Global Ratings affirmed its B- long-term
foreign currency rating on Ukraine with a stable outlook, the agency reported
on Apr. 12, also affirming the rating of its senior unsecured debt at B-. The
rating reflects Ukraine’s “challenging institutional and political environment,
which reduces policy predictability and continuity,” the agency stated. S&P
also pointed to the improving state debt-to-GDP ratio and expects Ukraine will
comply with the IMF program on implementing reforms. It also assumes the
independence of Ukraine’s National Bank – a cornerstone for IMF cooperation –
will be preserved.

The agency also mentioned political risks, stating
that Volodymyr Zelenskiy’s “credentials with respect to macroeconomic and
foreign policy are untested.” Recall, recent polls suggest that Zelenskiy will likely become the next president.

S&P also warned on a risk of delay with the next
tranches of the IMF program, highlighting that the successful review of the
ongoing program will depend on the approval of certain legislation,
specifically to split supervisory responsibilities for financial intermediaries
and to approve new legislation on illicit enrichment.

Alexander Paraschiy: S&P’s
comments are very close to what Fitch Rating said about Ukraine in
March, and S&P’s unchanged credit rating is an expected
event. A positive development since Fitch’s rating action is that Yulia
Tymoshenko, among the leaders in the presidential elections, did not qualify
for the second-round runoff. Her program contradicted many IMF positions and
her victory could have led to an increase in Ukraine’s default risk. We agree
with S&P that the central bank’s independence is important for Ukraine
keeping its macro stability and solvency. We share the expectation of S&P
analysts that the new president will maintain it.

We also share the concerns of S&P about the risk
of delays with the next IMF tranche, particularly because the implementation of
Ukraine’s commitments largely depend on the will of parliament to adopt
necessary legislation. We have seen in recent months that the parliament hasn’t
been productive and we see a new president’s ability to influence that will be
limited.

All in all, we see that Ukraine’s solvency risks
will more likely increase than decrease with Zelensky’s victory. At the same
time, we continue to expect that no changes in Ukraine’s credit ratings will
occur by the year end unless a new president makes sharp moves that will harm
Ukraine’s outlook.