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Fitch maintains its April forecast that Ukraine’s economy will contract 6.5% in 2020
Ukraine’s ratings reflect its credible macroeconomic policies, the agency said.
The international rating agency Fitch Ratings affirmed Ukraine’s long-term foreign and domestic currency issuer default rating at “B” with a stable outlook. This is stated in the official statement of the agency, published on its website the day before.
“Ukraine’s ratings reflect its credible macroeconomic policies, which have helped reduce inflation and reduce the budget deficit to a coronavirus-induced shock, as well as a track record of international support,” the statement said.
At the same time, Fitch points out that these strengths are contrasted with low external liquidity, high financing needs associated with the payment of large sovereign debt, a vulnerable but improving banking sector and weak corporate governance indicators.
“The impact of the coronavirus, at least temporarily, has reversed the improvements Ukraine has made in recent years in terms of reducing its debt burden, normalizing growth prospects after the geopolitical and economic crisis of 2014-2015,” adds the agency.
According to Fitch estimates, Ukraine has satisfied almost 68% of its fiscal financing needs for 2020 in the amount of $ 23.5 billion. The agency expects to assign another tranche this year under the IMF’s stand-by program ($ 0.7 billion) and the first tranche of a new macro-financial loan. EU aid for 1,200 million euros, which, together with available internal liquidity and the balance of the State Treasury, provide the opportunity to cover outstanding financial needs.
Fitch forecasts Ukraine’s international reserves by the end of 2020 at $ 27.4 billion, up from $ 29 billion in early September.
“Continued interaction with the IMF is key for Ukraine to maintain access to external financing. However, the risks of implementing the IMF stand-by program are significant, given Ukraine’s poor reputation for implementing past programs and possible court decisions and legislative initiatives that lead to a rollback of the reforms, “he added. in the statement.
According to Fitch, the unexpected and frequent changes in the government at the beginning of the year, especially in key economic positions such as finance minister, and the political pressure on the NBU that led to the resignation of the chief in July create political uncertainty.
“In addition to undermining hard-won confidence in politics, declining central bank independence could lead to a decline in macroeconomic and financial stability, limit access to external financing and increase Ukraine’s vulnerability to shocks.” the agency said.
Fitch expects inflation to approach the NBU target of 5% by the end of 2020, 5.3% next year, and 5.7% in 2022.
Fitch maintained its April forecast that Ukraine’s economy will contract by 6.5% in 2020. At the same time, in 2021, growth will be 3.8% and in 2022, 3.5%.
“However, risks of deterioration in our forecasts persist, given the uncertainty about the scale and duration of the coronavirus outbreak,” the agency said.
Fitch predicts that the consolidated budget deficit will reach 6.5% of GDP in 2020 and gradually decrease to 5.4% of GDP in 2021 and 4.2% in 2022.
According to the agency’s estimates, Ukraine’s public debt will rise from 44.4% last year (with guaranteed debt: 50.5%) to 57.4% of GDP (65.1%) this year and 60% by 2022.
Recall that this week Ukraine paid 2.1 billion dollars in debt. The Ministry of Finance paid $ 1.69 billion to cancel foreign government bonds issued in 2015 and which expired. Another $ 400 million was paid as interest on government bonds maturing in 2020-2027.
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