Fitch affirms Ukraine at B with stable outlook

Fitch Ratings affirmed Ukraine’s long-term foreign and local currency IDRs at “B” with a stable outlook, according to an announcement yesterday. The agency highlighted that Ukraine’s economic growth is highly dependent on the cyclical steel sector and is sensitive to a downturn in the global economy. Fitch expects the country’s economic growth will be 2.4% this year and accelerate to 3.5% in 2013. The C/A deficit is seen at 6% of GDP in 2012 but the main stresses are on the capital account. Devaluation risks are high and could lead to overshooting given fragile confidence in the hryvnya and a more flexible exchange rate would help Ukraine absorb external shocks. Fitch believes the end of the election cycle in October should pave the way for fiscal tightening and action on outstanding IMF commitments. At the same time, failure to secure IMF financing in 2013 or regain sovereign external market access would likely trigger a rating downgrade.