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Fitch Ratings revised its Outlook on Ukraine's Sovereign Credit Rating to Positive and Affirmed its “B” Rating

On August 6, 2021, Fitch Ratings revised its outlook on Ukraine's long-term issuer default rating (IDR) in foreign currency from stable to positive and affirmed the IDR at “B”.

Fitch notes that the rating decision was made taking into account the relative resilience of Ukraine's macroeconomic indicators to the economic shock caused by the coronavirus and expectations that the public debt-to-GDP ratio will fall due to the over-performance of the state budget revenue plan and the recovery of GDP growth. It is stated that foreign currency reserves are growing and Ukraine has maintained access to commercial and concessional external financing, despite uneven progress in implementing the IMF SBA program. The agency's analysts note that the state is strengthening policies, backed by a flexible exchange rate, a commitment to inflation targeting policies, and a prudent fiscal policy that has contributed to greater macroeconomic stability and a marked reduction in public debt since the recovery from the 2014-15 economic crisis as a result of Russian aggression.

Fitch forecasts that the state budget deficit will shrink by 1.7% through 2021 to 4% of GDP-this is below the government's target of 5.1%, and below both the average state budget deficit of B-rated countries, which is 5.3%. The state budget deficit fell sharply in the first half of 2021 to 1.8% of GDP (annualized) due to a 1% revenue surplus. However, it is noted that the current budget provides for a slightly increased amount of state guarantees - about 1.8% of GDP. Also, it said that 0.9% of GDP is the government's new initiatives to raise taxes in 2022, which have not yet been approved by law, it will help offset budget costs. The agency forecasts that the state budget deficit will fall to 3.2% of GDP in 2022, and to 2.9% in 2023.

Fitch notes the reduction of short-term financing risks. The government funds of USD 2.0 billion at the end of July (82% of which is in foreign currency) were accumulated due to Eurobond issuance in April and July for a total of USD 1.75 billion and restoration of non-resident investments in the domestic government bond market for USD 1 billion (0.6% of GDP) in the first half of 2021. In addition, SDR allocation to Ukraine in the amount of USD 2.7 billion (0.6% of GDP) and the available liquidity in the domestic banking sector provide more options for financing the state budget until the end of 2021 (including the repayment of the state foreign debt of USD 2.2 billion in September).

Public debt is projected to fall by 3.9 p.p. in 2021 to 50% of GDP (57% including publicly guaranteed debt). This is below the average of B-rated countries, which is 69.6%. The decrease will occur due to a reduction in the state budget deficit, growth in nominal GDP and the strengthening of the hryvnia against the USD by 3%.

"We welcome Fitch Rating's decision to revise Ukraine's credit rating outlook from stable to positive. Despite all the difficulties caused by the coronavirus pandemic, during the year of peak public debt payments, we managed to reduce credit risks. It was achieved due to the strengthening of macroeconomic stability. Ukraine has once again demonstrated better performance than most rating peer countries. We continue the policy of fiscal consolidation that should lead to a strengthening of the sustainability of Ukraine's public finance and as a result an improvement of Ukraine's credit rating in the future" - commented Sergii Marchenko, Minister of Finance of Ukraine.

For more details on the rating revision, see Fitch Rating's report.