REUTERS
The implications for Ukraine's sovereign credit profile of the political crisis which saw two parties leave the governing coalition will depend on whether IMF disbursements are further delayed and official lenders' willingness to support Ukraine is weakened, Fitch Ratings said in its statement.
"Tensions between President Petro Poroshenko and Prime Minister Arseniy Yatsenyuk, combined with the influence of vested interests and popular opposition, have already delayed reforms and held up the second review of the IMF's $40 billion, three-year Extended Fund Facility (EFF) program," the statement reads.
As reported earlier, the first EFF review last August secured $17.5 billion following reforms including the floating the hryvnia, and liberalizing the domestic gas market. But political reform and tackling corruption are proving challenging. Economy Minister Aivaras Abromavicius resigned on 3 February, saying his reform efforts were being obstructed.
While, the near-term political consequences are unclear, as noted in the statement. A minority government or fresh elections would add to the uncertainty around the Ukrainian authorities' capacity to pass reforms that are critical to keeping the IMF program on track and to underpin macroeconomic stability, Fitch said.
International support from the IMF and other multilateral and bilateral lenders is an important support for Ukraine's sovereign rating, which the agency raised to 'CCC' from 'RD' last November after the country completed its private-sector debt restructuring. Fitch notes the official sector provided most fiscal financing in 2015. Official financing has boosted reserves, although these remain low.
"Ukraine's low sovereign rating reflects continued weaknesses in the macroeconomic environment, public and external finances, and structural issues, including governance indicators," the statement further reads.