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Fitch Ratings on Wednesday affirmed Ukraine's long-term foreign and local currency Issuer Default Rating at 'B' with a negative outlook. It also affirmed the short-term foreign currency IDR and the country ceiling at 'B'.
Fitch said Ukraine's government effectively abandoned policy commitments made under the IMF's second review program in July, including a hike of retail gas tariffs intended to trim the budget deficit to 6% of GDP in 2009, or 8.6% including the deficit of state energy company Naftogaz NJSC.
"Ukraine's IMF program is at serious risk of going off-track at the next review in November, mainly because policy discipline has eroded even further, risking a delay in disbursement of the next IMF loan tranche",Andrew Colquhoun, Director in Fitch's Sovereigns Group noted. "Interruption to the program risks undermining fragile confidence in the currency and the banking system, which in turn could add to pressure for a rating downgrade."
The firm pointed out that correction action by Ukraine is unlikely ahead of the president elections in 2010, and the country could find it difficult to finance the huge deficit if the IMF and IFI funds are not forthcoming, without resorting more heavily to monetary financing. Moreover, printing excess money would risk the stability of the exchange rate and the broader economy, Fitch added.
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