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S&P Confirmed Ukraine's Ratings At "B/B" With A Stable Outlook

S&P Confirmed Ukraine's Ratings At "B/B" With A Stable Outlook

International rating agency S&P Global Ratings has confirmed the long-term sovereign ratings of Ukraine in foreign and national currency at the level of "B/B," the outlook on the ratings is stable, the agency said in a statement.

The agency expects the country's GDP to fall by 6% in 2020 and grow by 4% in 2021. Also, S&P forecasts Ukraine's economy to grow by 3% annually in 2022-2023. "In 2020, the Ukrainian economy will shrink by 6% before recovery begins in 2021 due to domestic demand," the agency said in a statement.

S&P notes that it is not yet clear how recent changes in the management of the National Bank of Ukraine (NBU) will affect the independence of the Central Bank, monetary policy, and Ukraine's relations with key creditors. "The independence of the NBU and the regulator's success in curbing double-digit inflation, lifting capital controls and restoring financial stability have been key achievements of Ukraine's reforms over the past half-century," the agency notes.

The agency writes that it may consider raising Ukraine's ratings next year if it believes that the consolidation of public finances will be faster than currently projected.

"We may lower the country's ratings if disruptions to funding through preferential programs or capital markets over the next year call into question the government's ability to meet debt service obligations," S&P adds.

In early July, Yakov Smoliy, who served as the head of the National Bank of Ukraine since March 2018, wrote a letter of resignation, explaining this as "systematic political pressure" on the Bank, and applied to the President. The Verkhovna Rada of Ukraine, at the suggestion of President Vladimir Zelensky, dismissed Smoliy from the post of head of the regulator. After his dismissal, Smoliy expressed the opinion that his resignation will not affect the country's cooperation with the IMF, since it is about working "with institutions, not individuals." The Verkhovna Rada of Ukraine on July 16, at the suggestion of Zelensky, appointed the Chairman of the state Ukrgasbank Kirill Shevchenko as the head of the National Bank of the country. Under Ukrainian law, the Rada appoints and dismisses the head of the National Bank on the recommendation of the President.

We expect Ukraine's real GDP to contract by 6% in 2020 after authorities imposed stringent containment measures in March, closing down large parts of the economy to limit the spread of infection. Domestic demand has since rebounded with the easing of restrictions and will be the main driver of the economic recovery through 2021. While industrial and agricultural production continued throughout the lockdown, smaller businesses and employees in the informal sector appear to have borne the brunt of the fallout so far.

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