S&P affirms Ukraine B rating with Stable outlook

S&P Global
Ratings affirmed its long-term foreign and local currency sovereign ratings on
Ukraine at ‘B’ with a stable outlook, the agency reported on March 12. The
outlook “balances the risks to Ukraine’s economy from continued delays in
accessing concessional financing, the weak external environment, and the
potential for a reversal of past reforms,” the agency commented.

S&P sees
potential for Ukraine’s rating to grow in the case that its public finances
consolidate faster than it forecasts (budget deficit of 5.3% of GDP in 2021 and
3.5% in 2022) or its external liquidity improves. It could lower Ukraine’s
rating if the government’s ability to meet debt service obligations
deteriorate, e.g. in case of backtracks on key reforms.

S&P expects that
Ukraine will be able to receive one IMF tranche this year (USD 0.7 bln) which
will unlock USD 1.5 bln other concessional financing for the government. It
expects that on top of that, Ukraine will need to raise an additional USD 5-6
bln of commercial debt on local and international markets. Meanwhile, it
believes the recently imposed sanctions by the Biden administration on Igor
Kolomoisky indicate “a strong renewal of western backing for President
Zelensky’s reform agenda”.

The agency sees
Ukraine’s real GDP will increase by 4.2% in 2021, 3.5% in 2022 and 3.0%
afterwards. It sees average annual CPI at 7.7% in 2021, 5.5% in 2022 and 5.0%
afterwards. Based on such forecasts, it estimates Ukraine will have to pay USD
250 mln and USD 136 mln on its GDP warrants in 2023 and 2024, up from USD 40
mln this year (our estimate is – this year Ukraine will pay USD 32 mln this
year). As the key risk to its forecasts, S&P points at uncertainty about
the distribution and take-up of vaccines.

Alexander
Paraschiy: With
Ukraine’s relatively strong economic and financial metrics of 2020, as well as
a good chance for the renewal of western support in 2021, S&P’s rating
actions look well-grounded at this stage. We see little prospects for S&P
to upgrade Ukraine’s rating this year, while the risk for a worsened rating or
outlook is still there. In this matter, much will depend on the ability of the
government to meet the commitments made to the IMF (and not to spoil the
previous achievements) by July 2021.