Ukraine’s Junk Rating Unchanged at S&P as Cabinet Seeks IMF Cash

  • S&P says Ukraine made progress toward accessing bailout funds
  • Ukrainian government needs to fight ‘widespread’ corruption

Ukraine’s junk credit rating was left unchanged by S&P Global Ratings, which said the eastern European nation’s new government has made progress toward accessing bailout funds, but it must fight “widespread corruption” while the situation in the country’s war-torn easternmost regions remains uncertain.

S&P on Friday left the nation’s long-term sovereign debt rated at B-, six levels below investment grade and on par with Iraq and Ghana, according to a report. The nation’s outlook is stable as the the ratings company predict the government will maintain access to financing from the International Monetary Fund. Fitch Ratings and Moody’s Investor Service rate Ukraine at the same level.

Ukraine, which restructured $15 billion of state debt last year and has been fighting Russia-backed separatists for more than two years, is emerging from a political crisis that’s delayed disbursements from its $17.5 billion IMF bailout. Prime Minister Volodymyr Hroisman’s cabinet, which took over in April, has pledged to resume cooperation with the Washington-based lender to underpin recovery from a recession and boost reserves. The IMF’s board will decide in July on disbursement of $1.7 billion, paving the way for at least another $1.7 billion in other aid.

“We believe broader reforms will continue, albeit with setbacks, and that Ukraine’s western partners will remain engaged,” S&P analysts led by Ravi Bhatia in London said in a statement. “We remain cautious on the fiscal outlook, owing to the sizable risks that still remain, including the conflict in the East, and large contingent liabilities, included two court cases relating to a US$3 billion Eurobond issued to Russia.”

Growth Outlook

While the nation’s economy, which retreated 9.9 percent in 2015, will probably return to growth in 2016, its prospects remain “challenging,” S&P said. Gross domestic product is set to expand 1 percent, helped by “a slight improvement in confidence and investment thanks to a more predictable political environment, lower inflation, and currency stabilization,” it said.

S&P classifies Ukraine’s banking industry in its highest-risk category as it estimates non-performing loans at 40 percent of total, according to the statement.

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