Via RT Business

US-based credit ratings agency Standard & Poors (S&P) has upgraded Ukraine’s long-term sovereign credit rating, citing the new government’s improved financial management and a potential thaw in relations between Kiev and Moscow.

“Foreign exchange reserve accumulation, strengthening growth, and narrowing fiscal deficits underpin our upgrade of Ukraine,” the agency stated on Friday, justifying the move with assertions that Ukraine’s new government “appears to be committed to preserving macrofiscal stability” and “liberalizing the economy.

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S&P raised Ukraine’s global scale long-term foreign and local currency sovereign ratings from “B-” to “B,” and its national scale ratings to “uaA” from “uaBBB.” Short-term ratings have been affirmed at B. The outlook on the ratings has been deemed stable.

A stable forecast reflects our expectations that the new government of Ukraine will consolidate macroeconomic reforms in recent years, while the economy is recovering, and total public debt is reduced in relation to GDP,” the agency said.

It also noted that Ukraine should “maintain access to both internal and external capital markets,” which, according to S&P estimations, would allow it to “ensure repayment of commercial debt until 2020.”

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While noting that Ukraine’s economy is continuing to recover, the ratings agency praised the recent victory of Ukraine’s National Bank (NBU) in restraining inflation below 10 percent. Also, S&P raised hopes of the country’s new government’s intentions to improve the business environment within the state, especially its plan to lift the moratorium on the sale of agricultural land.

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“In our opinion, these measures could pave the way for higher foreign investment inflows into Ukraine, boding well for the economy’s growth and external leverage,” it stated.

However, according to S&P, Ukraine’s ratings may soon come under pressure from potential problems with preferential financing or access to capital markets. These could pose a strain on the ability of the Ukrainian government to cover large external payments, especially given its current account deficits and large external repayment obligations. The agency emphasized, however, that these problems may be evaded if the government sticks to reforms. Among these, S&P mentioned the plan to secure the independence of the NBU, which would “aid the government’s ability to access commercial debt markets and receive concessional funding from international financial institutions.”

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The ratings agency also noted that the positive outlook is partly due to the prospect of a thaw in Ukraine’s relations with Russia, which have been strained since 2014 and further deteriorated late last year following the Sea of Azov incident.

“More recently, there has been a slight thaw between the two neighbors. While we do not anticipate the implementation of the Minsk protocol in the near term, there could be some de-escalation in the Donbas,” S&P stated.

Ukraine received its previous “B-” rating with a negative outlook back in 2013, when Petro Poroshenko was at the country’s helm. At the time, S&P justified the low rating by reference to the Ukrainian government’s lack of strategy, political uncertainty, financial sector stress, as well as weak external liquidity and a hefty government debt burden.

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