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      Scope assigns Ukraine first-time sovereign ratings of B with Negative Outlook

      UAGV 15.500 09/11/24 UAGV 15.500 09/04/24 UAGV 15.500 10/02/24 UAGV 12.500 10/12/29 UAGV 12.500 04/27/29 UAGV 6.000 09/18/24 UAGV 6.000 10/23/24 UAGV 6.000 11/06/24 UAGV 6.000 11/20/24 UAGV 9.500 12/04/24 UAGV 9.500 12/11/24 UAGV 9.500 03/19/25 UAGV 11.720 07/30/25 UAGV 11.540 12/10/25 UAGV 11.970 04/16/25 UAGV 11.900 10/08/25 UAGV 11.800 03/25/26 UAGV 11.790 04/22/26 UAGV 11.780 05/27/26 UAGV 11.780 06/03/26 UAGV 11.890 05/06/26 UAGV 11.830 10/14/26 UAGV 11.820 11/25/26 UAGV 9.500 07/16/25 UAGV 11.940 06/24/26 UAGV 11.870 01/06/27 UAGV 11.880 12/09/26 UAGV 11.580 02/02/28 UAGV 11.570 03/01/28 UAGV 11.110 03/29/28 UAGV 10.710 04/26/28 UAGV 6.000 11/26/25 UAGV 6.000 12/24/25 UAGV 6.000 01/14/26 UAGV 6.000 10/29/25 UAGV 6.000 11/12/25 UAGV 9.980 03/06/30 UAGV 9.950 05/08/30 UAGV 9.910 08/07/30 UAGV 9.820 02/12/31 UAGV 9.800 04/02/31 UAGV 9.790 05/14/31 UAGV 9.760 07/23/31 UAGV 9.730 09/24/31 UAGV 9.710 11/19/31 UAGV 6.000 09/13/28 UAGV 6.000 10/11/28 UAGV 6.000 11/22/28 UAGV 6.000 05/16/29 UAGV 6.000 09/19/29 UAGV 6.000 11/28/29 UAGV 6.000 04/10/30 UAGV 6.000 06/12/30 UAGV 6.000 08/28/30 UAGV 6.000 09/18/30 UAGV 6.000 12/11/30 UAGV 6.000 03/12/31 UAGV 6.000 04/23/31 UAGV 6.000 06/04/31 UAGV 6.000 09/10/31 UAGV 6.000 10/15/31 UAGV 9.990 08/27/31 UAGV 9.990 12/10/31 UAGV 6.000 12/23/26 UAGV 6.000 01/27/27 UAGV 6.000 01/22/31 UAGV 6.000 01/28/32 UAGV 9.000 07/17/30 UAGV 5.000 02/20/32 UAGV 11.300 05/10/25 UAGV 11.290 11/10/25 UAGV 10.570 05/10/27 UAGV 10.360 11/10/27 UAGV 9.780 05/10/29 UAGV 9.610 11/10/29 UAGV 9.150 05/10/31 UAGV 9.010 11/10/31 UAGV 8.880 05/10/32 UAGV 8.750 11/10/32 UAGV 8.630 05/10/33 UAGV 8.520 11/10/33 UAGV 8.420 05/10/34 UAGV 8.310 11/10/34 UAGV 8.220 05/10/35 UAGV 8.120 11/10/35 UAGV 9.700 12/08/32 UAGV 9.700 10/13/32 UAGV 9.700 08/25/32 UAGV 9.700 06/02/32 UAGV 9.700 03/10/32 UAGV 9.700 12/08/27 UAGV 9.700 06/07/28 UAGV 9.700 12/06/28 UAGV 9.700 10/06/27 UAGV 8.750 02/16/33 UAGV 8.750 04/20/33 UAGV 15.840 02/26/25 UAGV 9.790 05/26/27 UAGV 3.600 02/03/22 UAGV 12.520 05/13/26 UAGV 12.300 07/03/24 UAGV 12.700 10/30/24 UAGV 7.750 09/01/24 UAGV 7.750 09/01/25 UAGV 7.750 09/01/26 UAGV 7.750 09/01/27 UAGV 9.750 11/01/28 UAGV 7.253 03/15/33 UAGV 6.876 05/21/29 UAGV 7.750 09/01/24 UAGV 7.750 09/01/25 UAGV 7.750 09/01/26 UAGV 7.750 09/01/27 UAGV 9.750 11/01/28 UAGV 6.876 05/21/29 UAGV 7.253 03/15/33 UAGV 4.375 01/27/30 UAGV 4.375 01/27/30 UAGV 15.840 02/26/25 UAGV 15.840 02/26/25 UAGV 6.750 06/20/26 UAGV 6.750 06/20/26
      FRIDAY, 28/01/2022 - Scope Ratings GmbH
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      Scope assigns Ukraine first-time sovereign ratings of B with Negative Outlook

      Improvements of economic policy framework, reserve build-up, reduction in public debt and multilateral support abet ratings*. Elevated geopolitical risk, high external financing needs, restricted market access and record of default reflect challenges.

      For the rating action annex, click here.

      Rating action

      Scope Ratings GmbH (Scope) has today assigned Ukraine first-time long-term foreign- and local-currency issuer and senior unsecured debt ratings of B, with the Outlooks Negative. The Agency has assigned short-term issuer ratings of S-4 in local- and foreign-currency, with Stable Outlooks.

      Rating drivers

      The B foreign- and local-currency issuer ratings assigned with respect to Ukraine reflect improvements of macroeconomic policy frameworks and macroeconomic stability during years past, a flexible exchange rate regime and strengthened central banking framework, rebuilding of forex reserves and significant reduction of public debt both over years prior to the Covid-19 crisis as well as since 2020. In addition, ongoing relationship with and support from the IMF, European Union and other concessional multilateral institutions supports preservation of a constructive agenda of reform and anchors the meeting of state external financing requirements. Improvements of banking-system governance and stability also are reflected in assigned ratings.

      The ratings are challenged by risks associated with: i) elevated geopolitical tensions alongside a weak institutional framework; ii) elevated external financing requirements and significant sovereign debt redemptions as compared with foreign-currency reserve stocks; iii) vulnerability to phases of restricted international debt capital market access; iv) a contemporary record of sovereign default; as well as v) remaining risks surrounding independence of the central bank and banking-system vulnerabilities.

      The Negative Outlook assigned on the long-term credit ratings reflects heightened geopolitical risk surrounding the possibility of escalation of conflict with the Russian Federation, and associated credit implications under a scenario in which Ukraine’s territorial integrity were further compromised and/or internal stability undermined. The Negative Outlook represents Scope’s view that risks to the sovereign ratings are skewed to the downside over the forthcoming 12-18 months.

      The ratings could be downgraded if, individually or collectively: i) external-sector risks escalated, such as sharp depreciation of hryvnia, increase of dollarisation, drawdown of reserves and/or an extended period of restricted international market access – such as under scenario of escalation of geopolitical conflict; ii) fiscal policies were to remain loose for longer or a fresh economic downturn materialises, impeding a trajectory of reduction of public debt; iii) reform commitment weakens or past reforms were retracted, dampening an outlook for the curtailment of macroeconomic imbalances and undermining contingent IMF and multilateral financing support and private-sector capital inflow; iv) banking-system risks escalated; and/or v) institutional risks became more pronounced, such as were institutional reform reversed and/or civil domestic instability to rise.

      Conversely, the Outlooks could be revised to Stable if, individually or collectively: i) geopolitical risks ease; ii) the government’s debt ratio and gross financing requirements were further meaningfully reduced; iii) additional steps are taken in trimming significant external-sector vulnerabilities, such as via official-reserve accrual, reducing dollarisation, redressing structural current-account deficits and/or agreeing to a new programme with the IMF after conclusion of the current Stand-By Arrangement (SBA); iv) banking-system reforms further curtailed outstanding fragilities and support maturation of banking supervisory structures and debt capital market development; and/or v) additional steps were taken with respect to institutional reform.

      Rating rationale

      The B ratings assigned reflect improvements of macroeconomic policies and macroeconomic stability since a severe 2014-15 geopolitical and economic crisis. This acknowledges a pre-crisis track record of general government debt having been placed on a sustained downward trajectory prior to the Covid-19 crisis, aided by a sovereign debt restructuring of 2015. After peaking in February 2015 around 99.2% of GDP, government debt nearly halved to 50.2% by December 2019 – reflecting prudence in fiscal policy setting. Inflation eased substantively (to lows of 1.7% by May 2020 after peaks of above 60% during early 2015), with international reserves rebolstered. Alongside continued IMF involvement, a flexible exchange rate framework has been reinforced with de facto inflation targeting introduced since early 2016. A less volatile and stronger growth profile developed, with growth averaging 2.9% over a sustained 2016-19 period.

      The credit ratings consider reconstruction of Ukraine’s FX reserve stock, amounting to a substantively rebolstered USD 29.4bn as of December 2021 – the highest level since 2012, integrating in this respect a USD 2.7bn grant in August 2021 under an IMF historic special drawing rights allocation1, and compared with a nadir of USD 4.7bn in February 2015. This FX reserve stock has, furthermore, been advanced via a period of comparative stability of hryvnia since 2015 as well as a temporary current account surplus of 3.4% of GDP in 2020, the latter owing to hikes in commodity prices and a temporary collapse of imports – offsetting some private-sector capital outflow. Nevertheless, reserves amount still to a modest 64% coverage of substantive short-term external debt liabilities (on remaining maturity basis), although bolstered since an inadequate 10% coverage as of (February) 2015. The National Bank of Ukraine (NBU) seeks prudently to sustain forex reserves of around USD 30bn moving ahead.

      Comparatively less benign terms of trade and strengthening domestic demand amid early recovery returned the current account to a deficit of 0.9% of GDP in the year to November 2021, covered, nevertheless, during 2021 by virtue of net capital inflows. Net foreign direct investment (FDI) totalled 3.1% of GDP in the year to Q3 2021, with such inflows having accelerated since Q4 2020. On the basis of external debt deleveraging, Ukraine’s net international investment position was bolstered from an ebb of -50.2% of GDP in Q3 2015 to -12.3% by Q3 2021. Gross external debt had been curtailed to 69.4% of GDP in Q3 2021, from 131.3% as of Q4 2015. An improved foreign-currency reserve stock and curtailed net external debtor position bettered Ukraine’s scoring under an external vulnerability and resilience evaluation Scope conducts annually2. Nevertheless, heightened geopolitical tensions have unwound currency appreciation of the recent past, with hryvnia having weakened 6% against the euro since November 2021 despite the central bank selling foreign exchange to smoothen currency market volatility.

      Improvements of banking-system governance and stability support the credit ratings. This includes reflection of an enhanced central banking macroprudential policy framework, despite some loosening in supervisory standards over the recent past, alongside wholesale clean-up of the domestic banking system, which has collectively seen advancement of strengthened capital adequacy ratios as well as enhanced liquidity in the banking system in domestic currency. Substantive non-performing loan (NPL) provisioning (90% of NPLs), adequate tier 1 capital (14.5% of risk-weighted assets, although easing off a 2021 peak of 16.8%) alongside enhanced profitability (return on equity of 33%) support system resilience. Profitability of domestic banks alongside outstanding capital cushions enable banks to meet fresh capital requirements introduced since 2022 – such as a requirement to cover 50% of operational risk with capital and an increase of risk weights as regards unsecured consumer loans as well as foreign-currency government securities. 2021 stress testing of 30 large banks revealed capital risks had declined as compared with 2019 stress testing, although interest rate risk remained a core concern relating to many bank balance sheets, including risk under a scenario of decline in value of securities holdings.3 While system-wide NPLs remain elevated at 31% of gross loans as of November 2021, this represented nevertheless hasty improvement from a nearly 50% ratio as of May 2020 – a reflection of time-bound NPL reduction strategies. System-wide dollarisation, while still elevated, has comparatively moderated, with a share of bank deposits in foreign currency having dropped 6pps since end-2019 to 34% as of November 2021, with loans in foreign currency likewise having eased 8pps over the same time period to 29%. Financial-system reform has been guided by an assigned financial sector development programme for the period to 20254, aiming to develop the nation’s domestic capital markets and further a process of curtailment of foreign-currency exposure in the economy and dependence upon external markets. Such objectives are furthermore anchored by the EU-Ukraine Association Agreement as well as other international commitments.

      Ukraine’s credit ratings are anchored by an ongoing track record of engagement with the International Monetary Fund (although recognising a poor track record of completing IMF programmes). This record takes into account a current 18-month SBA of USD 5bn, under which a delayed first programme review was completed during November 20215, enabling disbursement of USD 699mn of loans. The IMF has agreed to a short SBA programme extension to end-June 2022, with USD 2.2bn of programme funding as yet undisbursed. A second and last tranche (of EUR 600mn) of EU financing under a parallel macro-financial assistance facility was disbursed, further supporting the meeting of state external financing requirements. The IMF SBA centres upon safeguarding of past reform and aims for a comparatively limited set of fresh reform during this pandemic crisis. However, programme policy areas centre upon: i) returning fiscal policies to settings consistent with medium-run debt sustainability while protecting the socially vulnerable (as well as trimming quasi-fiscal operations, such as in the energy sector); ii) preservation of central bank independence and the central bank’s price-stability mandate; iii) ensuring banks’ financial health; iv) tackling corruption and justice reform; as well as v) reducing a role of the state in the economy as well as that of vested interests. Recent reform has seen restrictions to activities of oligarchs and amendments of High Council of Justice selection processes. Access to commercial and multilateral external funding and commitment to reform, even recognising uneven successes under IMF programmes, enhance Ukraine’s debt sustainability, and abet the ratings.

      The ratings assigned to Ukraine acknowledge a declining trajectory of the government debt ratio entering recent geopolitical uncertainty. Ukraine’s debt stock has moderated to date from crisis peaks of 60.8% of GDP as of end-2020 to around 50% by end-2021 – briskly returning to pre-crisis (2019) levels of 50.2%. Under a baseline scenario of moderate interruption to recovery due to geopolitical tension (growth averaging 2.4% over 2022-26), a significant 7.5% hryvnia depreciation in each of 2022 and 2023 alongside higher inflation for longer (GDP deflator assumed to average 9.7% over 2022-26), this declining debt trajectory nearly halts over 2022-23 prior to resuming decline from 2024, reaching 42.8% by 2026 – which, under such a scenario, would represent the lowest such debt ratio since prior to the 2014-15 crisis. Under such a scenario, an assumption is made as regards a headline budget deficit of 3.5% of GDP for this year, after 3.6% in 2021 and 6.0% during 2020 crisis peaks, followed by an average general government deficit of 2.7% over subsequent years 2023-26 (returning in direction of the more moderate deficit levels of pre-crisis of an average of 2% over 2015-19). However, under an adverse scenario of a repeat of a severe 2014-15 geopolitical crisis with Russia under which hryvnia experienced much sharper devaluation, growth severely contracted over a two-year period while inflation spiked, Ukraine’s government debt would increase to 92.2% of GDP by 2024, prior to moderation to 80.6% by 2026.

      After estimated output growth of 2.5% during 2021, a below-consensus 1.5% economic growth during 2022 and 2023 could be observed absent escalation of military conflicts; nevertheless, there are both upside as well as downside risks to 2022 and 2023 growth estimates. A slow pace of vaccination poses continued risk to recovery, with Covid-19 restrictions extended to 31 March 2022. At the same time, recovery has been supported by a recent solid growth of private consumption and investment, rise in main export product prices, such as of agricultural products and commodities, and gains of real wages (8% YoY in November 2021). Over the medium run, trend growth is estimated of around 2.5% (under an NBU estimate of 4%), in reflection of a working-age population decline of an estimated 0.8% per annum between 2022-2026 under UN projections as well as reflection of robust potential for productivity gain. Realised economic growth in Ukraine has averaged only 0.3% since 2010 due to experience of multiple crises.

      Inflation has risen, standing at 10% YoY as of December 2021 – double an inflation objective although slightly easing from September highs of 11%. Disinflation has seen challenges amid more persistent global inflation and the second-round effects of higher food and energy prices. Further inflationary pressures are expected due to risk of escalation of conflict with Russia – via forex channels as well as via global natural gas and food prices. The NBU has prudently hiked the reference policy rate six times since March 2021, tying to a cumulative rate increase of 4pps since last March, reaching 10% currently, with further hike(s) anticipated. Amid inflation and geopolitical tension, three-year hryvnia yields stand presently around 16.75%, an increase from the 13.4% a month before.

      At the same time, multiple credit challenges constrain the credit ratings. Firstly, elevated external financing requirements and significant sovereign debt redemptions represent a credit constraint. State external debt service amounts to USD 4.4bn over year 2022 (2.1% of GDP) after USD 5.4bn in 2021 (2.8% of GDP), mostly a reflection this year of a USD 2.25bn Eurobond due in November alongside payments as regards multilateral loans. Around 59.6% of Ukraine’s public and publicly-guaranteed debt is externally held as of end-2020 – with sovereign Eurobonds making up the largest segment of external government debt (and representing 28.2% of aggregate government debt) followed by multilateral loans (14.6% of aggregate debt). Domestic debt makes up 40.4% of aggregate public debt but with a segment likewise denominated in foreign currency (amounting to 5.4% of aggregate debt). On such a basis, the sovereign borrower’s debt portfolio remains exposed to forex risk with foreign-currency denominated public debt representing around a 65% aggregate share – comparatively unchanged from the composition before 2015’s debt restructuring (55.6% external debt and circa 62% denominated in foreign currency as of 2014)6. On basis of a 7.4-year term to maturity of government securities (near an emerging market average), aggregate government gross financing requirements accrue to a material 13.5% of GDP during 2022 followed by around 10.3% per year from 2023-26 – although nevertheless under an IMF 15% “high scrutiny” threshold.

      Secondly, Ukraine’s ratings are constrained by exposure to financial vulnerabilities during frequent phases of restricted international debt capital market access and associated dependence upon multilateral financing to meet sovereign debt obligations. This month, yield premia on Ukraine 5-year USD bonds over safe-haven US Treasuries widened to circa 1,000bps for an inaugural time since the pandemic crisis – having risen from around 400bps as of late September 2021. Ukraine has probably temporarily lost international market access, with the Ministry of Finance intent upon waiting out turbulence prior to returning to the Eurobond market. Ukraine has not formally requested a further IMF programme at this stage after the current programme concludes but remains open to this – to ensure a liquidity and confidence backstop; the government has been presented with a fresh EUR 1.2bn macro-financial assistance package from the European Union. A government cash holding of USD 2.0bn as of end-July 2021 (82% of which is in foreign currency) provides a degree of further support during periods of restriction in market access. Available liquidity from the domestic banking sector provides some financing space.

      Thirdly, Ukraine’s credit rating is restricted via a modern record of sovereign default. After declaring default on debt to domestic banks in 1999 and restructuring of Gazprom Eurobonds in 2000, in 2015, Ukraine observed conclusion of the USD 15bn debt restructuring with creditors under terms of an IMF Extended Arrangement – with this 2015 restructuring affecting foreign-currency Eurobond holders. A EUR 3bn Eurobond issued in December 2013 only purchased by the Russian government and held out from this 2015 restructuring remains in default.

      Fourth, alongside banking-system risk such as still elevated NPLs, sectoral concentration risk and outstanding foreign-currency bank exposure, risks around the independence of the central bank remain relevant – even after amendments of NBU Law prudently strengthened central bank de jure independence. Attrition of human capital from the NBU – including departure of a Deputy Governor – over the past year represents a rating concern. Bolstering NBU autonomy and further enhancing sound monetary governance are critical to the smooth management of price stability, assurance of economic stability and fluid access to multilateral financing.

      Finally, as a lower-middle-income economy (with GDP per capita of USD 4,958 in 2022), Ukraine’s credit vulnerabilities embed comparatively weaker institutions. 2019’s presidential and parliamentary elections delivered prospect for the government under President Volodymyr Zelensky to address longer-standing structural weaknesses as associated with the rule of law and corruption perceptions. However, unexpected and frequent changes of leadership, including in key postings such as the Minister of Finance and Central Bank Governor, have resulted in institutional and economic uncertainty. Reform has been undertaken addressing some core areas of institutional deficit such via a legislation strengthening independence of the National Anti-Corruption Bureau and enhancing integrity and credibility of the selection process of its head; furthermore, criminal liability against public officials for violations of obligations to file asset declarations was restored.

      Finally, the long-term ratings are challenged by heightened geopolitical tension associating with possibility of escalation in conflict, the latter also a core driver of assignment of a Negative Outlook on the long-term credit ratings. In Scope’s view, tensions with Russia are likely to endure for longer. Recent escalation of geopolitical tension has adversely affected market and investment conditions, capital flows as well as Ukrainian asset valuations, while raising demand for foreign currency from both businesses and households. While Ukraine’s economic resilience has been bolstered since a 2014-15 crisis – reflected in B credit ratings assigned, any escalation of conflict is likely nevertheless to challenge ratings.

      Core Variable Scorecard (CVS) and Qualitative Scorecard (QS)

      Scope’s Core Variable Scorecard (CVS), which is based on the relative rankings of key sovereign credit fundamentals, provides a first indicative rating of ‘bb+’ for Ukraine. Ukraine receives no adjustment to this indicative rating via the reserve currency adjustment under the sovereign methodology. As such, under the methodology, ‘bb+’ final indicative ratings can be adjusted by the Qualitative Scorecard (QS) by up to three notches, depending on the size of relative credit strengths or weaknesses versus peers based on analysts’ qualitative analysis.

      For Ukraine, the following relative credit strengths are identified under the QS: ‘fiscal policy framework’. Conversely, ‘monetary policy framework’, ‘debt sustainability’, ‘debt profile and market access’, ‘external debt structure’, ‘resilience to short-term external shocks’, ‘banking sector performance’, ‘banking sector oversight’, ‘institutional and political risks’, and ‘social risks’ are identified as relative credit weaknesses under the QS.

      The combined relative credit strengths and weaknesses under the QS generate a three-notch downside rating adjustment. A further one-notch adjustment to B was made at rating committee level to account for unique geopolitical risk relevant to the sovereign linked to ongoing conflict with the Russian Federation, representing an adverse contingency for the long-term outlook of the ratings. As such, aggregate adjustments signal a sovereign rating of B for Ukraine.

      A rating committee has discussed and confirmed these results.

      Factoring of Environment, Social and Governance (ESG)

      Scope explicitly factors in ESG sustainability issues during its ratings process via the sovereign methodology’s stand-alone ESG sovereign risk pillar, with a 20% weighting under the quantitative model (CVS) as well as in the qualitative overlay (QS). Under governance-related factors under the CVS, Ukraine presents weak performance across an aggregate of the World Bank’s six Worldwide Governance Indicators (WGI). Between 2010-15, Ukraine saw weakening WGI rankings across indicators except ‘government effectiveness’. Since 2015, in view of a significant institutional reform programme, percentile ranks have improved across WGI; nevertheless, scores remain weak especially with respect to ‘political stability’, ‘control of corruption’ and the ‘rule of law’. Critical progress has been made in holding corrupt officials accountable. Over the past two years, the High Anti-Corruption Court adjudicated corruption cases and passed 45 decisions (80% being convictions).5 The number of convictions of senior public officials has been unprecedented since Ukrainian independence. This is, moreover, reflected in improvement of metrics such Ukraine’s highest score since 2014 on Transparency International’s 2020 Corruption Perceptions Index (with a minor drop-off in 2021). Ahead of parliamentary elections no later than October 2023, President Zelensky’s political party has seen opinion polling decline since 2019 – currently running neck to neck with ex-President Petro Poroshenko’s political grouping. Next presidential elections are due thereafter by 2024. Ukraine’s governance risks reflect geopolitical tension, alongside legislative and judicial risk to policy implementation. In the assessment of Ukraine’s ‘institutional and political risks’ under the QS, Scope evaluates this qualitative analytical category as ‘weak’ against Ukraine’s ‘bb+’ indicative sovereign peer group – representing a core credit rating constraint. Outstanding geopolitical tensions evaluated under the sovereign methodology’s ESG pillar drove assignment of the Negative Outlook as concerns Ukraine.

      Socially related credit factors are similarly captured under Scope’s CVS quantitative model as well as QS qualitative overlay. In the CVS model, Ukraine receives strong scoring on income inequality (as captured through the ratio of the income share of the 20% of persons with the highest household incomes to the 20% of persons with the lowest household incomes), moderate marks on labour force participation rate (as regards the 15-64 year old age group: 72.8% in 2020), and below-average scoring with respect to an old-age dependency ratio. In addition, comparatively modest GDP per capita (estimated USD 4,958 in 2022) and a medium level of unemployment (9.6% as of Q3 2021) under international comparisons are evaluated under the CVS. Scope estimates unemployment to have averaged 10% in 2021 prior to 9.8% in 2022 and 10% in 2023. Declines of the working-age population (-0.8% per annum over 2022-26) weigh upon economic growth potential. Ukraine ranked 40th (of 77 nations) according to aggregate results from the OECD’s Programme for International Student Assessment (PISA) assessment of the scholastic performance of 15-year-old students, while performing an above-average 53rd of 141 nations in 2019 with respect to skills of the current workforce according to the World Economic Forum7. Ukraine was positioned 100th of 141 nations on the World Economic Forum’s 2019 Global Competitiveness Index in respect to healthy life expectancy. While Covid-19 cases are sharply increasing again with transmission of the Omicron variant (and only 34% of citizens fully vaccinated), daily mortalities have recently been moderating. In the QS assessment of Ukraine’s ‘social risks’, Scope evaluates this qualitative analytical category as ‘weak’ against a ‘bb+’ indicative sovereign peer group.

      Finally, in respect to environmental risk – Ukraine scores poorly on the CVS on carbon emissions per unit of GDP (a proxy variable for “transition costs” in achieving a greener economic design in the long run) but Ukraine scores strongly on its lesser degree of exposure and vulnerability to natural disaster risk – the latter as measured via the World Risk Index. Ukraine’s marks are, moreover, strong under the CVS on ecological footprint of consumption compared with available biocapacity. Overall, under the CVS, Ukraine performs above a global median on the environmental sub-category of the ESG pillar. Outside of the CVS, Ukraine ranked 60th on a 2020 Environmental Performance Index of 180 countries8 – with scoring having improved over the past ten years on air quality, lead contamination and sustainable agriculture but having worsened as regards ecosystem services provision, climate change and pollution emissions. Ukraine plans to reduce emissions slightly while growing the economy, reducing poverty and combating aggression from neighbouring Russia – aiming to curtail greenhouse gas emissions from 62% under 1990 levels as of 2019 to 65% below 1990 levels by 2030, and thereafter achieve full climate neutrality no later than 2060. Ukraine previously committed to ending coal-fired power generation by 2035 while investing significantly into renewables. The nation is prone to natural as well as man-made disasters like frequent flooding, harsh winters, storms, mine disasters as well as the legacy of the Chernobyl disaster. In summer 2021, Ukraine constructively made first steps towards inauguration of a green bond market – introducing green bonds, defining what projects are eligible for green-bond funding, who may issue them and what reporting rules for issuers might be. Ukraine’s environmental objectives and challenges are also considered within Scope’s QS via an assessment of ‘neutral’ on ‘environmental risks’ as compared with a sovereign peer group.

      *. Correction was made to insert missing word “abet” to the sub-title on 31 January 2022. In the original publication, the first sentence of this sub-title read: “Improvements of economic policy framework, reserve build-up, reduction in public debt and multilateral support ratings.”

      Rating Committee
      The main points discussed by the rating committee were: i) fundamental improvements since 2014-15 crisis; ii) FX reserves and the external sector; iii) banking-system reform and resilience; iv) relationship with the IMF and multilateral creditors; v) debt trajectory and debt sustainability; vi) inflation and monetary policy; vii) public debt structure; viii) market access and credit-event history; ix) political and institutional outlook; x) geopolitics tensions; and xi) peers comparison.

      Rating driver references
      1. IMF, IMF Governors Approve a Historic US$650 Billion SDR Allocation of Special Drawing Rights
      2. Scope Ratings, 2021 External Vulnerability and Resilience rankings of 95 countries: Risks for emerging economies amid rising inflation, rates
      3. National Bank of Ukraine, Financial Stability Report, December 2021
      4. National Bank of Ukraine, Strategy of Ukrainian Financial Sector Development until 2025
      5. IMF, IMF Executive Board Completes First Review Under Stand-By Arrangement for Ukraine, Approves Extension of the Arrangement
      6. IMF, Ukraine Request for Extended Arrangement under the Extended Fund Facility and Cancellation of Stand-By Arrangement
      7. World Economic Forum, The Global Competitiveness Report 2019
      8. Yale Center for Environmental Law & Policy, Environmental Performance Index

      Methodology
      The methodology used for these Credit Ratings and/or Outlooks, ‘Rating Methodology: Sovereign Ratings’ 8 October 2021, is available on https://www.scoperatings.com/#!methodology/list.
      Scope Ratings GmbH and Scope Ratings UK Limited apply the same methodologies/models and key rating assumptions for their credit rating services, while Scope Hamburg GmbH’s methodologies/models and key rating assumptions are different from those of Scope Ratings GmbH and Scope Ratings UK Limited.
      Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/#!governance-and-policies/rating-scale. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://www.scoperatings.com/#!governance-and-policies/regulatory-EU. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://www.scoperatings.com/#!methodology/list.
      The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

      Solicitation, key sources and quality of information
      The Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
      With Rated Entity or Related Third Party Participation    YES
      With Access to Internal Documents                                  NO
      With Access to Management                                            YES
      The following substantially material sources of information were used to prepare the Credit Ratings: public domain and the Rated Entity.
      Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting the/these Credit Rating(s) originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data. Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Rating) and/or Outlooks and the principal grounds on which the Credit Ratings and/or Outlooks are based. Following that review, the Credit Ratings were not amended before being issued

      Regulatory disclosures
      These Credit Ratings and/or Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlooks are UK-endorsed.
      Lead analyst: Dennis Shen, Director
      Person responsible for approval of the Credit Ratings: Giacomo Barisone, Managing Director.
      The Credit Ratings/Outlooks were first released by Scope Ratings on 28 January 2022.

      Potential conflicts
      See www.scoperatings.com under Governance & Policies/EU Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings.

      Conditions of use / exclusion of liability
      © 2022 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Analysis GmbH, Scope Investor Services GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.

      UAGV 15.500 09/11/24 UAGV 15.500 09/04/24 UAGV 15.500 10/02/24 UAGV 12.500 10/12/29 UAGV 12.500 04/27/29 UAGV 6.000 09/18/24 UAGV 6.000 10/23/24 UAGV 6.000 11/06/24 UAGV 6.000 11/20/24 UAGV 9.500 12/04/24 UAGV 9.500 12/11/24 UAGV 9.500 03/19/25 UAGV 11.720 07/30/25 UAGV 11.540 12/10/25 UAGV 11.970 04/16/25 UAGV 11.900 10/08/25 UAGV 11.800 03/25/26 UAGV 11.790 04/22/26 UAGV 11.780 05/27/26 UAGV 11.780 06/03/26 UAGV 11.890 05/06/26 UAGV 11.830 10/14/26 UAGV 11.820 11/25/26 UAGV 9.500 07/16/25 UAGV 11.940 06/24/26 UAGV 11.870 01/06/27 UAGV 11.880 12/09/26 UAGV 11.580 02/02/28 UAGV 11.570 03/01/28 UAGV 11.110 03/29/28 UAGV 10.710 04/26/28 UAGV 6.000 11/26/25 UAGV 6.000 12/24/25 UAGV 6.000 01/14/26 UAGV 6.000 10/29/25 UAGV 6.000 11/12/25 UAGV 9.980 03/06/30 UAGV 9.950 05/08/30 UAGV 9.910 08/07/30 UAGV 9.820 02/12/31 UAGV 9.800 04/02/31 UAGV 9.790 05/14/31 UAGV 9.760 07/23/31 UAGV 9.730 09/24/31 UAGV 9.710 11/19/31 UAGV 6.000 09/13/28 UAGV 6.000 10/11/28 UAGV 6.000 11/22/28 UAGV 6.000 05/16/29 UAGV 6.000 09/19/29 UAGV 6.000 11/28/29 UAGV 6.000 04/10/30 UAGV 6.000 06/12/30 UAGV 6.000 08/28/30 UAGV 6.000 09/18/30 UAGV 6.000 12/11/30 UAGV 6.000 03/12/31 UAGV 6.000 04/23/31 UAGV 6.000 06/04/31 UAGV 6.000 09/10/31 UAGV 6.000 10/15/31 UAGV 9.990 08/27/31 UAGV 9.990 12/10/31 UAGV 6.000 12/23/26 UAGV 6.000 01/27/27 UAGV 6.000 01/22/31 UAGV 6.000 01/28/32 UAGV 9.000 07/17/30 UAGV 5.000 02/20/32 UAGV 11.300 05/10/25 UAGV 11.290 11/10/25 UAGV 10.570 05/10/27 UAGV 10.360 11/10/27 UAGV 9.780 05/10/29 UAGV 9.610 11/10/29 UAGV 9.150 05/10/31 UAGV 9.010 11/10/31 UAGV 8.880 05/10/32 UAGV 8.750 11/10/32 UAGV 8.630 05/10/33 UAGV 8.520 11/10/33 UAGV 8.420 05/10/34 UAGV 8.310 11/10/34 UAGV 8.220 05/10/35 UAGV 8.120 11/10/35 UAGV 9.700 12/08/32 UAGV 9.700 10/13/32 UAGV 9.700 08/25/32 UAGV 9.700 06/02/32 UAGV 9.700 03/10/32 UAGV 9.700 12/08/27 UAGV 9.700 06/07/28 UAGV 9.700 12/06/28 UAGV 9.700 10/06/27 UAGV 8.750 02/16/33 UAGV 8.750 04/20/33 UAGV 15.840 02/26/25 UAGV 9.790 05/26/27 UAGV 3.600 02/03/22 UAGV 12.520 05/13/26 UAGV 12.300 07/03/24 UAGV 12.700 10/30/24 UAGV 7.750 09/01/24 UAGV 7.750 09/01/25 UAGV 7.750 09/01/26 UAGV 7.750 09/01/27 UAGV 9.750 11/01/28 UAGV 7.253 03/15/33 UAGV 6.876 05/21/29 UAGV 7.750 09/01/24 UAGV 7.750 09/01/25 UAGV 7.750 09/01/26 UAGV 7.750 09/01/27 UAGV 9.750 11/01/28 UAGV 6.876 05/21/29 UAGV 7.253 03/15/33 UAGV 4.375 01/27/30 UAGV 4.375 01/27/30 UAGV 15.840 02/26/25 UAGV 15.840 02/26/25 UAGV 6.750 06/20/26 UAGV 6.750 06/20/26

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