Ukraine's economic growth probably topped 5.5% last year and will continue as industry drives the expansion in the former Soviet republic, Moody's Investors Service said.
Ukraine's Ba3 foreign currency ceiling and positive ratings outlook reflect the view that debts have fallen and liquidity has improved, Moody's said in its annual report on the eastern European nation. „Although higher gas import prices have increased inflation and the current-account deficit, Ukrainian industry seems to have absorbed them without losing its competitiveness,” said Jonathan Schiffer, the London-based Moody's analyst who co-wrote the report. Ukraine's economic growth, led by industrial output, investments and high world prices for steel, outperformed a World Bank forecast of 2.5% for last year after Russia doubled the price of natural gas it sells to Ukraine. Russia raised gas price by 37% this year. The statistical office reported on January 18 that the economy grew a preliminary 7% last year. Moody's raised Ukraine's outlook to positive from stable in November, indicating it is ready to improve the rating. The foreign and local issuer default rating was affirmed at B1, four steps below investment grade. Higher credit ratings mean lower debt costs for the government and Ukrainian companies. Ukraine is the biggest former Soviet republic to have credit ratings below investment grade, a legacy of political instability and delays in selling state assets and gaining membership of the WTO.
President Viktor Yushchenko is battling with Prime Minister Viktor Yanukovych, the man he ousted two years ago in the Orange Revolution, over domestic and foreign policies. Yushchenko seeks to bring the country into the European Union and NATO. „Less political uncertainty, improved growth prospects, and reasonable liquidity and debt payments combine to make the rating outlook positive,” wrote Schiffer. Still, „institutional weaknesses, the relatively slow pace of structural reforms, and risks associated with the country's fractious political spectrum remain.” Moody's also predicted that the country's budget deficit for 2006 should remain below 3% of GDP. (Bloomberg)