Ukraine needs IMF loan tranche, Fitch Ratings notes

Ukraine’s creditworthiness is highly dependent on
securing the next IMF loan tranche, Fitch Ratings agency said in its press
release on Aug. 10. “IMF program delays remain a source of uncertainty,”
the agency said. This support should mitigate low external liquidity and reduce
refinancing risks.

The agency noticed improvements in Ukraine’s
macroeconomic stability achieved due to exchange rate flexibility, a monetary
policy focused on price stability and prudent banking regulation. Among
positive developments, they highlighted cooling inflation, reduced
exchange rate volatility, and fiscal restraints. At the same time, low external
liquidity is cited as a major threat to sovereign creditworthiness.

The agency emphasized that Ukraine’s external buffers
are weaker than its ‘B’ category peers, noting the decline of international reserves in July to USD 17.8 bln
from a November peak of USD 18.9 bln.

An IMF Extended Fund Facility (EFF) next loan tranche
of possibly USD 1.9 bln is needed to preserve international reserves at healthy
levels and meet rising sovereign debt payments. Fitch stressed its affirmation
of Ukraine’s sovereign rating in April was based on the expectation that
Ukraine-IMF talks were to be finalized in 3Q18. Meanwhile, it has observed
increasing risks of the delay.

Evgeniya Akhtyrko: We can’t
agree more with Fitch’s position on the importance of IMF support for Ukraine
this year. Naturally, the recent drop in gross reserves to the minimum accepted
“safe level” of three months of imports would become the main point of concern for
credit rating agencies.

Should Ukraine fail to secure the IMF loan in
September, the rating agencies are certain to worsen Ukraine’s sovereign
ratings. With lowered ratings, Ukraine will face difficulty attracting debt on
the global markets.