Fitch warns of negative pressure on Ukraine’s rating

Ukraine has one of the lowest external liquidity ratios among B rated sovereigns, the Fitch Ratings agency warned markets in its October 8 press release. Sovereign bond yields of above 10% make it difficult for Ukraine to borrow on the external markets, while “significant barriers” remain on the country’s path to resume borrowing from the IMF, the agency said. Fitch expects Ukraine’s gross reserves will continue to fall, reiterating its position that a “more-than-forecast fall” in reserves would put negative pressure on Ukraine’s rating. Among possible positive developments, Fitch sees an IMF mission this month and a possible USD 3 bln loan from a Chinese bank, “which would provide hard currency inflows.”

Alexander Paraschiy: Fitch is still keeping Ukraine’s rating at “B”, which is two notches higher than Moody’s (the latter downgraded it to Caa1 in late September). So a possible downgrade will come as little surprise. The absence of a downgrade so far is encouraging, suggesting Fitch does not rule out the possibility of a positive development for Ukraine. Also, it illustrates that there is still a pool of experts outside the country that treat Ukraine positively, disregarding all the poor macro indicators. We believe the main hope for economic improvement is rooted in the Ukrainian government signing the Association Agreement with the EU and the still-existing chance that Ukraine will be able to resume cooperation with the IMF.