S&P upgrades its outlook for Ukraine due to Russian money

The Standard & Poor’s ratings agency upgraded its outlook for Ukraine’s B- rating to “stable” from “negative,” the agency reported on Dec. 26. The announced USD 15 bln loan from the Russian government decreases risks for Ukraine’s budget and external debt, enabling Ukraine to fully meet the necessary resources to service its external obligations over the next 12 months, according to agency estimates.

Alexander Paraschiy: Assuming that the Russian money comes in full as promised (USD 15 bln), Ukraine will satisfy all its external financial needs till the end of 2014. At the same time, the government is unlikely to solve the key problems that led to its current economic woes, particularly its high C/A deficit, high budget deficit, and low international reserves. So the need to devalue the hryvnia will only intensify in 2015. Moreover, as soon as Russia is done lending money at a term of “only up to two years,” Ukraine will have to repay the USD 15 bln by late 2015 and early 2016. By then, default risks will be as high as never before unless the Russian government extends more support or new sources of credit are found.