S&P improves Ukraine’s credit outlook to “stable”

The Standard & Poor’s ratings agency announced on July 11 that it raised Ukraine’s credit rating outlook to “stable” from “negative” in the category of foreign currency debt. S&P maintained Ukraine’s current “CCC” rating, eight levels below investment grade. Ukraine’s IMF cooperation is the main point of optimism, according to S&P analysts. At the same time, S&P expects the war between Ukraine and Russia to continue and does not anticipate a stabilization of the geopolitical environment in the short term. The agency expects Ukrainian GDP to shrink 7% this year and projects a budget deficit of 11% of GDP, including ongoing deficits at Naftogaz.

Alexander Paraschiy: Though we are more optimistic than S&P about GDP performance in 2014 (projecting -3.7% yoy), we consider the improved outlook as an advance for Ukraine rather than a reflection of a real improving trend. The economic situation is not that tough so far but the ongoing war in eastern Ukraine creates huge risks for the country and endangers economic recovery in the nearest future. Still, the good news is that the IMF and other Western institutions look committed to substantial financial support for the country, which means that Ukraine is unlikely to default on foreign currency liabilities this year.