Ukraine's economy may rebound "relatively quickly" next year after a
sharp contraction in 2009, helped by exports, according to Frank Gill,
Standard & Poor's primary credit analyst.
Ukraine's economy
may expand 4.5% in 2010, compared with the 12% contraction expected
this year, he said in a phone interview with the Bloomberg news agency
from London.
"We see the potential for a relatively quick rebound
next year, Gill said, adding that "the outlook remains highly
uncertain, as it hinges on external demand for metals, as well as
metals prices."
"Ukraine is facing shocks that would damage any
economy. Prices for chemicals and steel have declined sharply, while
import prices are being pushed higher by rising natural gas tariffs and
the exchange rate depreciation. At the same time, the ongoing political
uncertainty is very unhelpful," the analyst said.
S&P cut
Ukraine's credit rating to CCC+, seven levels below investment grade
and the lowest grade in Europe, on February 25, saying political
turmoil poses risks to crediting. S&P left the outlook negative,
indicating a possible further cut. Ukraine has been forced to turn to
the International Monetary Fund help to avoid a default, stabilize the
banking system, and aid its currency. The Washington-based lender
approved a $16.4 billion loan and gave an emergency handout of $4.5
billion in November. The government's plans to run a state budget
deficit of 5% of gross domestic product have jeopardized the second
installment, which was expected on February 15.
"It is not clear
how strong the commitment of the Ukrainian authorities is to implement
the IMF program. Government debt is quite low, though rising
significantly, but the willingness to pay the debt is not clear ahead
of the presidential elections," Gill said.
S&P expects the
hryvnia's rate to weaken further, Gill said. Ukraine's national
currency has lost more than 40 percent against the dollar in the last
six months.
"The hryvnia depreciation will further drive the
deterioration of the banks' asset quality, and that is ultimately going
to raise sovereign debt levels, as the government will need to
recapitalize local banks," he said.
Further "exchange rate
depreciation raises the risk of bank and corporate defaults and
rescheduling," said Gill. Still, "in the long-term perspective, it will
help the economy to be more competitive as balance sheets are freed up
again," he said.
S&P expects Ukraine's current-account
deficit to shrink to 2% of gross domestic product by the end of 2009,
compared with 6.7% last year, said Gill.
