SP: Public finance of Ukraine will continue to be under pressure in 2010

Public finance of Ukraine (rating on liabilities in foreign currency: CCC /Stable /C rating on liabilities in national currency: V-/Stabilnyy/S) will remain under pressure throughout 2010 - in the absence of a more coherent reforms in the energy sector and the pension system, the press service of Standard Poor “s. But even under these circumstances - when the budget is not approved in 2010 and is yet to pass a second round of presidential elections-Standard Poor” s continues to believe that a default by no means inevitable.

According to the agency, in real terms, expenditure may even fall, because, according to estimates by the National Bank of Ukraine (NBU), average inflation in 2010 is 14%. This situation would allow some easing of the situation with the “instantaneous” liquidity, but it is unlikely to restore confidence in the economic leadership of the country, because it means prolonging electoral period and, consequently, the possibility of delay in restoring relations with the International Monetary Fund (IMF).

Depending on how the decision will be implemented Verkhovna Rada to increase the minimum wage and, accordingly, pensions, “price” the implementation of the law “On state social standards and state social guarantees” can be from 2.5 to 7% GDP.

There is a risk of increasing pressure on the NBU by the community, acting for the monetization of fiscal deficits. The new President of the country during 2010 appointed new chairman of the institution; term exercise of the powers of the former heads of NBU expired in December 2009 Under the baseline scenario, Standard Poor “s, the law” On state social standards and state social guarantees “can not be executed, a failure of contractual obligations will remain substantially the volume until the resumptionb2bof the IMF program, expected this spring or early summer of 2010 This scenario provides a high probability of a gradual improvement in public finances - especially in the case of acceleration in GDP growth to 4%, as expected by Standard Poor ” s.