Fitch: Ukraine’s Solvency Depends On Support From IMF

Fitch, an international rating agency, says the support of the International Monetary Fund is a key factor for Ukraine’s solvency.

Fitch said this in a statement, Ukrainian News Agency reports.

The statement reads that easing inflationary pressures, moderating economic imbalances and declining debt support Ukraine's sovereign credit profile, but IMF program delays remain a source of uncertainty.

Fitch says the program is a key factor for sovereign creditworthiness, as it mitigates low external liquidity and reduces refinancing risks.

The statement reads that increased exchange rate flexibility and monetary policy focused on price stability and prudent banking regulation have helped macroeconomic stability improve.

Fitch notes that low external liquidity is a key sovereign credit weakness.

According to Fitch, exchange rate flexibility and moderate external imbalances should limit near-term balance-of-payments pressures, but the IMF Extended Fund Facility (EFF) is key to preserving international reserves and meeting rising sovereign debt payments.

“Pension reform, an updated privatisation bill, and passing a law to set up an independent anti-corruption court, including an amendment to meet international commitments, highlight the government's efforts to finalise the review. The main outstanding issues are potential modifications to the 2018 budget to meet the programme's 2.5% of GDP deficit target, and adjusting household heating tariffs,” reads the statement.

According to the statement, revenue performance improved in 2Q18, but expenditure under-execution will probably be required to meet the deficit target.

The rating agency notes that the freeze of residential gas prices was extended in July for one month and discussions on the tariff formula are ongoing, but will be complicated by political considerations, given the approaching heating season and elections due in 2019.

According to the statement, completing the review would allow the disbursement of the fourth IMF tranche (possibly USD 1.9 billion), boosting reserves and unlocking other multilateral and potentially market financing.

Fitch says it does not expect further disbursements under the current IMF EFF beyond the fourth tranche, as the program is scheduled to end in early 2019.

“But continuing engagement with the IMF and international partners will be important to sustain macroeconomic stability improvements, limit reform reversals, and secure access to official and market financing,” reads the statement.

As Ukrainian News Agency earlier reported, the National Bank of Ukraine notes that the major risk for the Ukrainian banking sector is a delay of resumption of the cooperation with the International Monetary Fund (IMF).