S&P rating questioned
17 June 2008
Published in
Inform
issue #75
See the full issue here.
Standard & Poor’s (S&P) Rating Services has lowered Ukraine’s sovereign rating from BB- to B+.
"The downgrade reflects the failure of authorities to put into place adequate policy measures to counter rising inflation in Ukraine's overheating economy," said Frank Gill, S&P credit analyst in a statement.
The rating has caused more than a few raised eyebrows amongst analysts that follow Ukraine.
Millennium Capital said it saw S&P’s “reaction as being quite premature.” On its website, analyst Viktoriya Bezverkha says, “Besides, we consider that the real economy is not overheated, as the agency states, as Ukrainian producers have high potential, spurring real output growth in five months 2008.”
The World Bank announced it would wait for the six monthly June and July inflation figures before making any adjustments to its forecasts.
The expected good harvest is likely to have a substantial impact on the figure. “Therefore, in case of a rich harvest and restrained government spending we expect that S&P will react with a rating upgrade with the same speed as they did for the downgrade,” opined Ms Bezverkha.
See the full issue here.
Standard & Poor’s (S&P) Rating Services has lowered Ukraine’s sovereign rating from BB- to B+.
"The downgrade reflects the failure of authorities to put into place adequate policy measures to counter rising inflation in Ukraine's overheating economy," said Frank Gill, S&P credit analyst in a statement.
The rating has caused more than a few raised eyebrows amongst analysts that follow Ukraine.
Millennium Capital said it saw S&P’s “reaction as being quite premature.” On its website, analyst Viktoriya Bezverkha says, “Besides, we consider that the real economy is not overheated, as the agency states, as Ukrainian producers have high potential, spurring real output growth in five months 2008.”
The World Bank announced it would wait for the six monthly June and July inflation figures before making any adjustments to its forecasts.
The expected good harvest is likely to have a substantial impact on the figure. “Therefore, in case of a rich harvest and restrained government spending we expect that S&P will react with a rating upgrade with the same speed as they did for the downgrade,” opined Ms Bezverkha.
An analyst close to the situation, based in the City
of London, was even more perplexed by S&P’s
rating. They described it as “weird” and suggested
the BB- rating already reflected the risk. “Although
inflation is a weakness, the rating should really
concern itself with the public debt
profile of Ukraine which relates to the willingness and the ability of the government to pay its debts. The fact remains that Ukraine has little debt and good reserves.”
By this move S&P now rates Ukraine (B+) three notches worse than Egypt (BB+). Egypt has a public sector debt/GDP ratio of over 90 percent, compared to just 15 percent for Ukraine. Meanwhile, S&P now rates Ukraine six notches behind Russia (BBB+) and four notches behind Kazakhstan (BBB-). Kazakhstan is still struggling to get over a banking crisis which has engulfed the country over the past year; its ratio of external debt/GDP stands at around 90 percent, versus just 60 percent for Ukraine. The bottom line is that Ukraine's debt ratios are modest and hardly warranted this downgrade.
Prime Minister Yulia Tymoshenko stressed that the S&P rating was only one agency’s opinion and that other analysts had different viewpoints. “Ukraine has quadrupled volumes of foreign investments from January to June this year as compared with the same period last year. Perhaps this is an objective evaluation of Ukraine’s rating in the world,” said the premier.
profile of Ukraine which relates to the willingness and the ability of the government to pay its debts. The fact remains that Ukraine has little debt and good reserves.”
By this move S&P now rates Ukraine (B+) three notches worse than Egypt (BB+). Egypt has a public sector debt/GDP ratio of over 90 percent, compared to just 15 percent for Ukraine. Meanwhile, S&P now rates Ukraine six notches behind Russia (BBB+) and four notches behind Kazakhstan (BBB-). Kazakhstan is still struggling to get over a banking crisis which has engulfed the country over the past year; its ratio of external debt/GDP stands at around 90 percent, versus just 60 percent for Ukraine. The bottom line is that Ukraine's debt ratios are modest and hardly warranted this downgrade.
Prime Minister Yulia Tymoshenko stressed that the S&P rating was only one agency’s opinion and that other analysts had different viewpoints. “Ukraine has quadrupled volumes of foreign investments from January to June this year as compared with the same period last year. Perhaps this is an objective evaluation of Ukraine’s rating in the world,” said the premier.