Bloomberg News

Moody’s May Cut Ukraine 2012 GDP Growth Forecast to 3%

December 15, 2011

(Updates with Russian gas, more forecasts, comment beginning in second paragraph.)

Dec. 15 (Bloomberg) -- Moody’s Investors Service may cut Ukraine’s economic-growth forecast for next year to about 3 percent from 4 percent as the faltering global economy crimps the former Soviet republic’s capital inflows and exports.

“We see several downside risks for this forecast and we may need to revise it,” Moody’s analyst Thorsten Nestmann said in a phone interview from Frankfurt today. “We are thinking about cutting it probably to something like around 3 percent.”

Economic growth next year will be driven by demand for Ukraine’s commodities and strong domestic consumption, Nestmann said. Ukraine depends “a lot on the global economy,” he said, after Moody’s cut the rating outlook to “negative.”

Ukraine is relying on a $15.6 billion loan program with the International Monetary Fund to support the national currency and the state budget. Payouts to Ukraine have been stalled this year as the government delayed steps to narrow the budget gap by raising the cost of natural gas and utility services. Officials are trying to renegotiate the terms of a Russian gas-supply contract to get a lower price.

“Definitely the risks are increasing, given the lack of a deal with Russia,” Nestmann said.

Ukraine’s credit-rating outlook was changed from stable today because of funding, liquidity and political stability risks after the country failed to meet the IMF’s terms on the bailout deal, Moody’s said in a statement.

Falling Bonds

The revision means Moody’s is more likely to lower the country’s B2 foreign-currency debt rating, which is five steps below investment grade.

Ukraine’s 7.95 percent government bonds due in 2021 fell, pushing the yield up to 10.073 as of 12:20 p.m. in Kiev, the highest level since Nov. 29, compared with 10.065 yesterday, Bloomberg data shows.

The authorities will calculate next year’s budget with a 3.9 percent economic growth assumption to meet IMF requirements, First Deputy Prime Minister Andriy Klyuev said yesterday. They will also seek to stimulate the domestic market and maintain growth at this year’s level of 5 percent, he said.

The 2012 budget assumes a price of $416 per 1,000 cubic meters of imported natural gas, Klyuev said yesterday. If there is no agreement, controlling the state budget is going to be “not easy, but manageable,” Klyuev said.

An accord with Russia would play an “important role” in the development of the current account, Nestmann said.

Liquidity Risks

Foreign-exchange reserves have fallen since August and the current-account deficit more than doubled in the first 10 months. Liquidity risks have risen “significantly” in comparison with the end of 2010, Nestmann said.

The government is facing a “significant” increase in debt repayments next year, which is “of concern” given conditions on global financial markets, Nestmann said.

Debt repayment, both external and domestic, will be about $10 billion next year, including central bank payments to the IMF and the $2 billion loan from VTB Group, Russia’s second- biggest lender, Nestmann said.

A resumption of the IMF loan program would be positive for investor sentiment and “help open access to markets” for Ukraine, Nestmann said. A new gas accord with Russia would also help “in the short term to improve liquidity”.

--Editors: James M. Gomez, Alan Crosby

To contact the reporters on this story: Daryna Krasnolutska in Kiev at; Kateryna Choursina in Kiev at

To contact the editor responsible for this story: Balazs Penz at Claudia Carpenter at

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