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Fitch affirms Ukraine 'B-' with stable outlook

Fitch Ratings has affirmed Ukraine's long-term foreign-currency Issuer Default Rating (IDR) at 'B-' with a stable outlook.

Fitch said that Ukraine's ratings balance weak external liquidity, high external financing needs driven by sovereign external debt repayments and structural weaknesses, in terms of a weak banking sector, institutional constraints and geopolitical and political risks, against improved policy credibility and consistency, improving macroeconomic stability, declining government debt and a track record of bilateral and multilateral support.

Short-term foreign-currency IDR and short-term local-currency IDR were affirmed at 'B', Fitch said.

Fitch expects international reserves to recover to $17.7bn (2.7 months of Current External Payments (CXP) by the end of 2018, Ukraine's external buffers remain weaker than 'B' peers (3.6 months of CXP). Increased exchange rate flexibility, unlocking of external financing through the new IMF deal and moderate external imbalances mitigate near-term pressures on international reserves.

Next year Ukrainians will vote in presidential (March) and parliamentary (October) elections, Fitch said.

"Although Ukraine's high reliance on external official and market financing will likely constrain space for a significant departure from the current policy direction by the next administration, populist anti-reform campaign platforms, short-term electoral calculations and a fragmented political landscape with powerful vested interests create risks for smooth progress under the agreed SBA [Stand-By Arrangement] programme," Fitch said.

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