BRAMA, Sep 29, 2005, 9:00 am ET
Fitch: New Government in Ukraine – Policy Goals Unchanged
Fitch Ratings-London-29 September 2005: Fitch Ratings, the international rating agency, says today that the newly-unveiled government of Yuriy Yekhanurov, which is dominated by both members of President Viktor Yushchenko's Our Ukraine party and apolitical technocrats, should boost the chances of greater near-term political stability. Ukraine's Long-term foreign and local currency sovereign ratings are currently 'BB-' (BB minus) and the Outlook on both ratings was changed to Positive from Stable in June. Ukraine has a Short-term rating of 'B' and a country ceiling of 'BB-' (BB minus).
The ratings are supported by Ukraine's low general government and net external debt ratios, which compare favourably with those of its rating peers, and the near-term support to the external position provided by a sizeable, though declining, current account surplus and official foreign exchange reserves of over USD14 billion. They are also underpinned by economic and foreign policies based on closer ties with the European Union, amicable relations with Russia and continued economic and structural reforms. Despite the dismissal of Prime Minister Yulia Tymoshenko and her Cabinet on 8 September and their replacement by Mr. Yekhanurov and his team, Fitch does not expect these goals to change.
Although the dismissal of the Tymoshenko government was a short-term blow for the Orange Revolution, such instability is common for credits in the 'BB' rating range. And while political risk is still high in Ukraine, it remains at far lower levels than it reached last year during the Presidential election. The changes in Cabinet members that have been unveiled this week provide an opportunity to end the political bickering within the government that had proved increasingly destabilising in recent months and should allow President Yushchenko to reassert his authority. Fitch expects the incoming government to act in a caretaker capacity until the scheduled spring 2006 elections. While this makes it unlikely that radical reforms will move ahead before the election, this was never the agency's central expectation. Even so, Fitch still believes that progress on lower-key technical reforms will be made. It is also possible that the new government may prove more able to bring the re-privatisation debate to a close, thereby reducing uncertainty and providing a much-needed boost to business confidence.
Further changes in Ukraine's sovereign ratings are likely to be driven by future political developments, macroeconomic management and performance and progress with structural reforms. The possibility of a united and strong government emerging after the next Rada election that is capable of delivering in key policy areas now hinges on how the main political players respond to the developments and, at times, acrimonious debates of the last month. Even with a strong government, institutional weaknesses and opposition from powerful vested interests will be working against rapid progress. Even so, the Positive Outlook indicates that Fitch currently continues to expect some headway to be made over a one- to two-year horizon.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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