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S&P Revises Ukraine Outlook to Stable; Rtgs Affirmed

May 21, 2003 | Cbonds

Standard & Poor's Ratings Services said today it revised its outlook on Ukraine to stable from negative. At the same time, it affirmed its 'B' long-term and 'B' short-term sovereign credit and senior debt ratings on the republic.

"The stable outlook reflects the recent strengthening of the government's strategy for financing its annual borrowing requirements," said Standard & Poor's sovereign credit analyst Helena Hessel. "The government has recently demonstrated increased commitment to negotiating the new program with the International Monetary Fund, and the World Bank is expected to release about US$200 million in new funds soon. These funds had previously been blocked."
Ukraine's sovereign domestic and external debt service due in 2003 amounts to US$2.2 billion, of which US$1.6 billion is principal repayment and US$600 million is interest payments. The debt payment on external debt includes US$355 million debt payments on Eurobonds due in March and September 2003.

The March payment was made as scheduled, and the September payment will be supported by proceeds from a Eurobond issue to be launched in June. Privatization revenues realized so far this year to finance the targeted 0.8% of GDP budget deficit and debt servicing, however, at 2.1 billion Ukrainian hryvnia (UAH; US$394 million), are significantly below target.

The continued turbulent domestic political environment makes it unlikely that a politically challenging and controversial privatization program will accelerate in the second half of this year. In general, weak policy execution highlights the country's politically divided and indecisive parliament and still-fragile government integrity. The new government, nominated in early December 2002, has had some legislative successes, but its support base in parliament remains extremely weak.

"Ukraine's credit standing could strengthen further with significant improvement in the political and policy environment. This would reduce major uncertainties regarding Ukraine's commitment to international integration, and is needed to ensure sustainable growth in the medium term. The ratings could come under downward pressure, however, if structural reform does not strengthen," added Ms. Hessel.

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