Ukraine is the biggest former Soviet republic with credit ratings below investment grade, a legacy of political instability and delays in selling state assets.
Fitch has also lowered its outlook for nine Ukrainian banks, following the reviewed outlook for the whole country. The banks include Ukraine's biggest private lender KB Privatbank, the state-run Oschadbank, the State Export-Import Bank of Ukraine as well as Swedbank, BNP Paribas, Commerzbank and UniCredit's Ukrainian units.
``Ukraine's recent strong macroeconomic performance faces growing risks from accelerating inflation and a rising current- account deficit,'' Andrew Colquhoun, the director of Fitch's Sovereigns Group, said today. ``An uncertain policy response is not convincingly mitigating the near-term risks facing the economy. A clearer anti-inflationary strategy from the authorities would be positive for the ratings"
Ukraine's April inflation rate jumped to 30.2 percent, the highest since January 1997, as global food prices surged and the government increased social spending. The government pledged to cut the annual rate to 9.6 percent this year from 16.6 percent a year ago. The International Monetary Fund forecast an inflation rate of 17.2 percent for this year.
Fitch forecasts Ukraine's current-account deficit will rise to 7.5 percent of gross domestic product in 2008, compared with 4.2 percent a year ago. It projects the country's gross external financing needs, including short-term debt, at 136 percent of reserves in 2008.