Country risk expert insight: Green shoots showing in Ukraine

The country sits 145th in the global rankings. ECR asked two of its experts what is behind the scoring changes.

Lilit Gevorgyan, senior economist and country risk analyst, IHS Global Insight

“Mixed messages are coming from Ukraine, and this is reflected in the relatively moderate improvement in the country’s risk rating. The restructuring of the $15.5 billion privately held debt and continued cooperation with IMF are major contributors to the positive impulse to the risk upgrade.

“This was coupled by the Ukrainian economy finally showing some signs of stabilizing. After 18 months of recession, in the third quarter of 2015, the real GDP expanded 0.7% on quarterly basis. Furthermore, the Ukrainian government signalled the upward trend to strengthen in the last quarter of 2015.

“The removal of the immediate pressure to service the privately held debt, and the continued disbursement of the IMF and international assistance instalments have helped Ukraine’s National Bank to see its foreign currency buffer start recovering in recent months. The risk of default on the foreign currency debt, at least in the short term, has been removed. A string of IMF-mandated reforms are also helping to jumpstart the rebalancing of the Ukrainian economy.

“But Ukraine is still not completely out of trouble. Both economic and political risks persist. One major source of concern remains the pace and the depth of much-awaited structural reforms. 

“To attract investors back to Ukraine, the authorities need to demonstrate that the second revolution will not be wasted on infighting and cosmetic changes, that they will uproot entrenched corruption and clean up the business environment.

“So far, the news from Ukraine is not entirely encouraging, the progress is slow, and the revolutionary forces appear to be disunited – all worryingly similar to the post-Orange Revolution developments.”

Dimitria Rotsika, economist, economic research & investment strategy, Piraeus Bank Group

“Looking at Ukraine’s scores, green shoots are the first thing that come to mind. Looking at the level of the score, things are a bit gloomier than at first glance.

“An easy way to depict the current status of the economy is to start to look at the various macroeconomic figures, such as real GDP contraction of 17.2%, 61% inflation and so on. Numbers can paint a rather adverse picture, but so can they provide comfort.

“As real GDP in 2015 Q3 contracted with a much lower rate at 7% year-on-year compared to 14.6% in 2015 Q2 and 17.2% in 2015 Q1, this signals a positive improvement compared to the last 18 months.

“The economy has been hit severely and the ongoing attempts for a restructuring of the economy will take some time to pass. If the socio-political instability continues then the local economy will be hit even harder than it has been already.

“However, a positive note is the settlement of the restructuring of the $15 billion privately held Ukrainian government Eurobonds in November and the IMF’s continuous presence. This is expected to elevate some of the debt-servicing pressures and improve the country’s external liquidity.”

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