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“High political risk and uncertainty have always been the key constraining factors to the ‘B+’ rating on Ukraine. Even before the current political crisis, policy implementation was continuously impeded by a highly polarised political environment, vested interests, and weak institutions,” says Standard & Poor’s credit analyst Konrad Reuss.

Improvements in external liquidity and government debt levels, together with the recent robust economic performance and strengthened economic structure, counterbalance the high political risk. Official foreign currency reserves of more than US$10bn provide a solid liquidity cushion, which was not the case during the crisis in the late 1990s.

“The outlook for the ratings would become increasingly bleak if a prolonged political stalemate, or even deepening civil unrest, began to negatively affect Ukraine’s macroeconomic stability,” adds Reuss.

Of particular sensitivity are economic growth, the stability of the payment and financial systems, prices, and public finances. In this context, yesterday’s announcement by the National Bank that it will provide liquidity to Ukrainian banks to avoid US dollar and Ukrainian hryvnia shortages should provide some comfort to the banking system.

Pressure on the ratings would also increase in the context of a lasting worsening of relations with the international community and more difficult access to external financing, which would be a likely scenario should the dispute over the election result not be resolved in a peaceful and legal manner in the coming weeks. In particular, disruption of the current programs agreed with international financial institutions would be also be seen as negative for the ratings.

Standard & Poor’s will be monitoring the developments closely over the coming days for signs as to whether the political crisis will stabilise or deepen.