S&P Revises Ukraine Country Rating Outlook to Positive

October 29, 2003

Standard & Poor’s Ratings Services announced that it has revised its outlook on Ukraine to positive from stable, and has affirmed the ‘B’ long-term and ‘B’ short-term ratings on the country.

“The outlook revision reflects reduced debt-servicing pressures and a strong economic performance,” stated S&P credit analyst Helena Hessel. “The fast build-up of foreign exchange reserves, to an estimated $7.0 billion at year-end 2003 from $4.4 billion at year-end 2002, has reduced debt-servicing pressures related to high principal repayments on government debt due in 2003 ($1.4 billion) and over 2004-2007 ($1.5 billion per year on average).”

The bulletin noted that “The recent successful reemergence of Ukraine on international capital markets has also reduced government financing strains. The accumulation of reserves has been underpinned by strong export growth, reflecting high metal prices and a competitive currency. The latter has also helped to boost nontraditional exports and support strong economic growth this year. Modest real GDP growth of 3%-4% is expected over the next couple of years, even if major structural reforms continue to be delayed due to political constraints.”

Hessel warned, however, that “the ratings on Ukraine remain constrained by the effects of powerful vested interests and widespread political patronage, the enduring challenges posed by industrial restructuring, and poor payment discipline throughout the economy.”

S&P said the positive outlook “signals the possibility of an upgrade over the next year or two if reforms are implemented to strengthen the political and legal systems, political and economic transparency, and the business environment.”

Hessel noted that, “Policy implementation over the next year will continue to be challenged by uncertainty over the outcome of the October 2004 presidential election, and disruptive relations between political parties.

“If the election takes place as scheduled and proceeds without major irregularities, the government will be able to consolidate reforms in the medium term, improving Ukraine’s political and economic environment and its creditworthiness. Conversely, significant political slippage, and a related deterioration in the country’s economic performance and access to financing, would put downward pressure on the ratings,” she added.

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