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1 July, 2013 15:41   ▪  

Fitch revises Ukraine's outlook to negative

Fitch Ratings lowered its rating outlook on Ukraine to negative from stable, citing the country's increasingly fragile external financing position and the likelihood that international reserves will decline further, The Wall Street Journal reports

“Fitch affirmed the sovereign nation's long-term foreign issuer default rating and country ceiling at B, which is five notches into junk grade,” WSJ reports. “Ukraine needs International Monetary Fund funding to repay over $9 billion in foreign debt this year, more than half of it to the Washington-based lender. An earlier loan program with the IMF was frozen in 2011 due to Ukraine's unwillingness to raise household gas tariffs, a key demand of the fund.”

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According to Fitch quoted by WSJ, such a large external financing requirement makes the country vulnerable to adverse shifts in international capital markets. Ukraine might strike a new deal with the IMF, but Fitch no longer expects that to happen this year.

The rating agency also noted Ukraine's wide current account deficit of 8% of gross domestic product and the authorities' limited scope to resist any renewed pressure on the currency, which raises risks of a sharp exchange rate depreciation.

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Ukraine's weak business environment and governance indicators constrain the country's ability to fully exploit its economic potential, while its relatively large and still-distressed financial system remains fragile, Fitch comments for WSJ.

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