Moody's Investors Service today confirmed Ukraine's foreign-currency bank deposit ceiling at B2 with a stable outlook and changed its outlook to stable from developing for other key ratings to reflect the relative political stability that has been achieved in recent weeks.
The ratings that now carry a stable rating outlook include the country's B1 foreign-currency ceiling, the B1 foreign-currency government bonds, and the B1 local-currency government bonds (B1). The foreign-currency bank deposit ceiling had been under review for downgrade since December 1, while the other ratings mentioned carried the developing outlook since that date. Ukraine's local currency guideline remains at A3.
The rating agency said its actions follow several months of quasi-revolutionary events that have seen a new president and governing coalition come to power.
Ukraine's macroeconomic indicators, which had reflected an exceptionally strong performance prior to the period surrounding the controversial 2004 presidential election, will weaken comparatively in 2005, as it will take some time to counter the fiscal and monetary consequences of pre-electoral commitments, said Moody's.
The new government will likely concentrate on improving the business environment by speeding deregulation, improving transparency, promoting a more independent judiciary, undertaking civil service reform, privatizing many state-owned enterprises, encouraging greater economic competition, and developing domestic capital markets, said the rating agency.
Moody's noted that the new government is unproven, while the highly fractious Ukrainian Parliament provides a challenge for coalition building and legislative activism.
The political-business elite in the eastern and southern regions of the country that recently suffered electoral defeat will have to be integrated into the new government's perspectives and programs if these initiatives are to succeed in stimulating Ukraine's economy and constructing institutions and mechanisms conducive to improving the country's political-juridical foundations.
This may have consequences for fiscal federalism, as the new political economy may apportion more revenues to the regions with less remaining for the central government's state budget.