Outlook Raised to Positive by Fitch on Lower Budget Gap 2011-07-23

Fitch Ratings raised its outlook for Ukraine’s sovereign credit rating to “positive” from “stable,” citing government progress in reducing the budget deficit.

Fitch reaffirmed the former Soviet republic’s B rating, five levels below investment grade and on a par with Argentina, in an e-mailed statement today. The improved outlook indicates the ratings company is more likely to increase Ukraine’s credit grade than cut it or leave it unchanged.

“The government has made progress in narrowing the overall fiscal deficit,” Charles Seville, director of Fitch’s sovereign team, said in the statement. “The Ukrainian government secured parliamentary approval in July for an unpopular pension reform, showing commitment toward addressing medium-term fiscal challenges and carrying out at least part of the reform agenda agreed with” the International Monetary Fund.

Ukraine turned to the IMF for a $15.6 billion bailout last July, its second in two years, after the economy shrank by almost 15 percent in 2009 amid the global financial crisis. Under the accord with the Washington-based lender, the government agreed to trim this year’s budget deficit, increase the retirement age and raise natural-gas prices for households.

Fiscal consolidation and economic recovery should help government debt to stabilize at about 30 percent of gross domestic product at the end of 2011, Seville said. The ratings company estimates this year’s budget deficit at 4 percent of GDP, down from 7.9 percent in 2010.

Ukraine’s economy grew 4.4 percent in the first half of the year, Prime Minister Mykola Azarov said yesterday. GDP may expand 4 % to 5 % in 2011 and 2012, according to Fitch.