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Expert Opinion

14.03.2011

Credit-Rating: Ukraine’s economy in January and February 2011

Credit-Rating has today published its monthly survey of the current state and development prospects of Ukraine’s real and financial sectors of economy, of the national external environment, public finances and government’s debt-related policy in January and February 2011.

Despite the subsided business activities in early 2011, the pace of development of the national economy in January 2011 had an upward trend: the output index in basic industries was recorded at 109.3% versus similar year-earlier period (111.1% in December 2010; 106.9% in November 2010). The decelerated development of real sector of the economy in January 2011 comparatively to December 2010 was induced by a plummeted output (by 14.5 percentage points in January 2011 versus December 2010), which is traditionally inherent to the first month of a calendar year. In January 2011 the growth in output was recorded at 9.7% y-o-y, with 14.4% growth recorded in the processing industry. As in late 2010, a major contribution to rising output of the processing industry has been made by export-oriented sectors – machine-building, metallurgy, and chemical industry. The persisting consumer demand fueled by growth in real incomes of the public, and by seasonal factors, have positively affected development of retail trade (the retail turnover grew by 11.7% in January; the volume of services rendered increased by 11.2%). The ratio of construction works completed has been reported at 106.1% for January, which was mainly connected with increased state investments in construction, including within preparation for EURO-2012, and with low comparative basis of 2010.

The agency notes that the risks inherent to public finances in 2010 will generally persist in the current budget period. Despite the gradually recovering economy, in 2011 the fulfillment of state budget revenues remains low due to cut rates of taxation by certain budget-forming taxes after the Tax Code of Ukraine came into effect. Thereat the current budget period is rather stringent because of upcoming repayments of the central government’s debt obligations. Specifically in 2011, the expenditures attributable to repayment of the sovereign debt will rise 2.3 times, with those to debt service advancing 1.5 times.

According to January 2011 results the aggregate balance of payment of Ukraine has been formed with a surplus of USD259 million (in January 2010 – with a deficit of USD1057 million). As in January 2010, the current account of balance of payments of Ukraine in the reported period was positive at USD282 million which was generally atypical for Ukraine’s external sector. In Credit-Rating’s view the situation in Ukraine’s external sector in the upcoming months will be determined by inflating deficit of the trade balance, which will probably be covered with attraction of private foreign capital. Despite the considerably increased international reserve assets of the National Bank of Ukraine, their cumulated volume does not represent a sufficient margin of strength for maintenance of necessary level of the national external liquidity in the event of a deep downturn in global financial markets.

Credit-Rating agency has operated in the Ukrainian market since 2001 being committed to assignment of the national scale ratings. The agency’s track record encompasses 1134 credit ratings. In January and February 2011 Credit-Rating assigned 6 ratings, revised 24 ratings, suspended 19 ratings, and withdrew 45 ratings. As at March 1, 2011 Credit-Rating maintains monitoring of 576 credit ratings, in fact 414 of corporate, 111 of financial and 51 of municipal sectors.

Information on all credit ratings assigned in accordance with the National Rating Scale may be found in THOMSON REUTERS and BLOOMBERG information systems.

For more information, please contact:
Department of Information and Communications 
Sergey Rozumyak +38044490 25 50 
SRozumyak@credit-rating.com.ua 
Denis Rudenko
DRudenko@credit-rating.ua

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