Ukraine`s outlook cut to stable from positive; ratings affirmed - Fitch

Fitch Ratings revised Ukraine`s outlook to stable from positive, saying the country`s recent strong macroeconomic performance faces growing risks from accelerating inflation and a rising current account deficit, according to Thompson Financial.

The agency affirmed Ukraine`s long-term foreign and local issuer default ratings (IDR) at `BB-`. The country ceiling is affirmed at `BB-` and the short-term foreign currency IDR at `B`.

`While improving fundamentals continue to support Ukraine`s ratings, an uncertain policy response is not convincingly mitigating the near-term risks facing the economy, justifying a reversion to a stable outlook,` Fitch said.

GDP growth has averaged 7 percent per year since 2000, boosting average incomes to 91 percent of the `BB` range median, from 43 percent in 2000, a fundamental improvement supporting the rating. However, Ukraine`s annual headline inflation reached 30 percent in April 2008 from 17 percent at end-2007, one of the highest among Fitch-rated sovereigns.

Fitch noted that Ukrainian authorities have so far rejected the International Monetary Fund`s advice for a near-balance budget this year, and expect a deficit of 1 percent of GDP, only 0.5 percentage point below the original 2008 budget projection.

The agency said a clearer anti-inflationary strategy from the authorities would help head off the risk of high inflation becoming entrenched in Ukraine`s economy and would be positive for the ratings.

Thompson Financial