Ukraine’s credit grade is constrained by government unwillingness to improve public finances, funding challenges and bad debt, said Standard & Poor’s, which rates the former Soviet state at junk.
There’s also a “lack of clarity” on unblocking an international bailout and on talks with Russia over natural-gas prices, the ratings company said today in an e-mailed report. S&P rates Ukraine at B+, four steps below investment grade, and cut its outlook to negative from stable on March 15.
Ukraine’s $15.6 billion loan from the International Monetary Fund has been on hold for more than a year as the government refuses to raise household energy costs to trim the budget deficit. Instead, the country is seeking to cut gas imports and reduce the price it pays Russia for the fuel by about a third.
“We could lower our long-term sovereign-credit ratings on Ukraine if the country’s external liquidity remains under pressure,” S&P analysts led by Trevor Cullinan wrote. “Conversely, we could revise the outlook back to stable if” the IMF outlook, international capital-market access and the current-account deficit “were to materially improve.”
The cost of insuring state debt against non-payment using credit-default swaps has risen to 833 basis points from 488 a year ago, data compiled by Bloomberg show. A basis point is 0.01 percentage point.
Economic growth may slow to 3.5 percent this year from 5.1 percent in 2011, while inflation may ease to 6 percent from 8 percent, S&P said. Ukraine needs to refinance about $50 billion in state and private foreign debt in 2012, it added.
S&P said it plans to review Ukraine’s credit rating after parliamentary elections in October.
-- Editors: Andrew Langley, Balazs Penz