Fitch upgrades Ukraine rating to B

9 September 2019

Fitch Ratings upgraded the long-term foreign and local currency ratings of Ukraine to B from B-, keeping its ratings outlook at Positive, the agency reported on Sept. 6. Fitch attributed the upgrade to improving macroeconomic stability, declining public indebtedness, “reduced political uncertainly due to a shortened electoral period” and expected policy continuity, as well as the government’s “strong stated commitment to structural reforms.”


Fitch analysts reported that Ukraine’s new Cabinet “includes technocratic, pro-Western and reform-minded ministers” and expect that the government will continue cooperation with the IMF and “facilitate access to official and market financing.” The agency also mentioned Ukraine’s declining government debt-to-GDP ratio, declining inflation, currency stability and rising gross foreign currency reserves.


The agency said it will be ready to further upgrade Ukraine’s rating if its foreign currency reserves grow faster than expected (USD 21.8 bln in 2019 and USD 22.4 bln in 2021, according to Fitch), and/or the economy grows faster than expected (Fitch sees real growth of 3.4% in 2019 and 3.2% in 2020), and/or debt declines further than expected (Fitch sees Ukraine’s state debt-to-GDP ratio at 55.8% in 2019 and 44.4% in 2021), and/or in case of improved “governance standards.”


Among the key factors that could trigger a decrease in Ukraine’s rating outlook from positive are possible delays with the IMF program, political/geopolitical shocks that could worsen economic and fiscal indicators, a failure to deliver forecasted economic growth and leverage indicators, as well as “failure to improve standards of governance,” Fitch reported. Such risks could become realized in case of a reversal of Privatbank's nationalization, fragmentation of pro-president’s faction in the parliament, or the interference of oligarch Ihor Kolomoisky in political decision-making.


Alexander Paraschiy: This is definitely an encouraging event, given that Ukraine has not had such a high rating from Fitch since 2013. However, the positive effect of the rating action on Ukrainian bond yields will likely be limited, as S&P and Moody’s still have lower ratings for the government (B- and Caa1, respectively). At least, Fitch’s rating move might create some pressure on other rating agencies to consider upgrading Ukraine’s rating on the basis of stable macroeconomic indicators and improved expectations about the government’s reform agenda.


Most likely, Fitch will also upgrade the credit ratings of all quasi-sovereign issuers of Eurobonds (Oschadbank, Ukreximbank, Naftogaz, Ukrainian Railways). It will be also interesting to see whether Fitch will upgrade the ratings of those companies that enjoyed a higher-than-sovereign rating before Sept. 6: MHP (one notch higher), Metinvest and Kernel (two notches higher). If the latter two get a rating upgrade, they will have highest historical credit rating of Ukraine’s corporate issuers (BB-).

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