News
19.02.2010
S&P sees no grounds for a default
Standard & Poor`s reported that Ukraine’s post election political risks would not prevent the new government from getting the budget adopted and renewing its work with international lenders. This will allow the state to fill in the budget deficit and minimize default risks. Ukrainian experts confirm the optimistic assessments of S&P because the amount of external payments is insignificant in 2010.
The international rating agency Standard & Poor`s (S&P) reported on Friday that, despite numerous threats to financial stability, Ukraine’s public finance will gradually improve in 2010. It is expected that GDP will grow by 4% and cooperation with the International Monetary Fund (IMF) will be renewed in late spring and early summer. Ukraine’s financial system will face threats from political instability, change of the National Bank chief, and the law “On State Social Standards and State Social Guarantees.” However, S&P experts are confident that this law will not be implemented or thief it is then the budget deficit will increase by 2.5% to 7% of GDP. The current outstanding amount of the IMF loan is $5.5 Bl and this is enough to cover a 5.5% of the budget deficit. Other than IMF loans Ukraine will have a hard time raising other external loans to finance the deficit. In 2010, Ukraine must repay one external loan of JPY 35.1 Bl ($392.3 Ml), so S&P analysts continue believing that “a default of Ukraine is by no means inevitable."
In the opinion of S&P, the absence of the Y2010 State Budget contributes to greater financial stability. “This means that at least during the 1st quarter of 2010 the new government will be able to make expenditures at its own discretion within the framework of a smaller budget. In the real terms, the volume of expenditures may even shrink because, according to NBU forecasts, this year’s inflation will average 14%", reads the report.
S&P predicts the first threats to the public finance will emerge in spring because of rising payments for treasury bills. Starting in April, the Finance Ministry will have to pay off three bond issues of UAH 3.7 Bl. Protracted political confrontation after the election may stimulate growth of the shadow economy and this will reduce the tax base. S&P fears a “risk of increasing pressure upon the National Bank of Ukraine” and that the Cabinet may want to solve financial problems at the expense of emission; a new chief at the National Bank will be unable to resist this pressure.
