Ratings

No longer than two-three weeks ago we were still quite confident that we will see at least one rating upgrade for Ukraine this year, namely from Moody’s which still has the country at ‘Caa1’ positive, two notches below S&P (‘B’ stable) and Fitch (‘B’ positive). While we still believe that chances for this to happen are reasonable, they are definitely not as high as they were. Besides the disruptions that the Covid-19 pandemic has created and will still generate, the recent government reshuffle has added to uncertainties about the reform path and pace, while the long-awaited and discussed IMF agreement has not been concluded yet.

On the IMF topic – a key rating driver we believe - having an agreement in place means a lot more than it meant a month ago. As we speak, Ukraine would find it probably quite difficult to fund itself from the international markets at reasonable rates, if at all. Hence, the importance of the financial component of the agreement has noticeably increased. Derived from this one, the agreement would also open the door for EC/World Bank funding and – last but not least – the reform agenda that such an agreement would put forward will be seen as an anchor for future governments as well. We are aware that Ukraine’s track record of working with the IMF is less than impressive (none of the previous four agreements was completed) but even partial reform accomplishments are better than reform reversals.