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Ukraine's Ratings Upgraded By Fitch As Debt Declines, IMF Deal Likely

The continued presence of some key economic officials from the previous government, such as Finance Minister Oksana Markarova, which will help ensure some policy stability, Fitch said. 

Ukraine's improving financial stability and renewed commitment to reform has pushed a leading Wall Street firm to upgrade the country's debt ratings.

New York-based Fitch Ratings raised Ukraine's long-term foreign- and local-currency debt to B from B-, the company said in a statement on September 6. The rating is still five notches below investment grade.

Ukraine's government debt as a percentage of its economy is expected to end the year at slightly below 50 percent, compared with 69 percent just three years ago, Fitch said. It expects the public-debt ratio to decline further over the next two years.

At the same time, the country is expected to reach a new loan deal with the International Monetary Fund (IMF) to help meet a spike in debt repayments in 2020 and 2021. The IMF loans are tied to commitments to undertake economic policies, such as land and gas reform.

"Ukraine has demonstrated timely access to fiscal and external financing, improving macroeconomic stability and declining public indebtedness, while a shortened electoral period has reduced domestic political uncertainty," Fitch said in the statement.

President Volodymyr Zelenskiy, who was swept to power on a mandate to fight corruption and attract foreign investment, called snap parliamentary elections in July, which gives the new government more time to negotiate with the IMF.

The parliamentary elections were initially scheduled for October.

Fitch described the new cabinet as including "technocratic, pro-Western, and reform-minded ministers." Among them are some key economic officials from the previous government, such as Finance Minister Oksana Markarova, which will help ensure some policy stability.

"Expected macroeconomic policy continuity, the new government's strong stated commitment to structural reforms and engagement with IIFs [international financial institutions] mean that Fitch expects further improvements in creditworthiness," the rating agency said.

Fitch said risks to its positive outlook for Ukraine include failing to carry out the reforms under the IMF deal and the new administration's reported ties to tycoon Ihor Kolomoyskiy.

The firm said Ukraine had a "weak record" in completing reforms.

Kolomoyskiy, a businessman who owns metals and energy assets in Ukraine, backed Zelenskiy's candidacy. The tycoon's former lawyer, Andriy Bohdan, is head of the presidential administration.

Kolomoyskiy is fighting the state to recover PrivatBank, a leading lender that was nationalized by the previous government in 2016.

"Although the reported links between the new administration and [Kolomoyskiy] pose a downside risk, Fitch does not expect these to prevent a new IMF program and progress with structural reforms," the firm said.

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