Page 10 - UKRRptFeb23

illegal supply of wholesale batches of Ukrainian aircraft engines to Russia.
The European Union is conscious that corruption will hinder the reconstruction process and has made sure that transparency and judicial reforms are part of the requirements Ukraine must meet in order to achieve EU accession. Kyiv is seemingly following this path, eager to prove to the Bloc that it's taking corruption seriously.
Ukrainian President Volodymyr Zelenskiy implemented major reforms over the summer, including appointing a new head of the Special Anti-Corruption Prosecutor's Office, a position that had been vacant for nearly two years. Moreover, the government expects to fill the position of Director of NABU in the very near future.
Zelenskiy’s efforts have been rewarded by the EU, which agreed to disperse the first tranche of the €18 financial support on January 16. The Bloc had previously withheld funding last year due to fears that the money would end up in the wrong hands.
To help with Ukraine’s efforts, the European Council announced a €50mn Action Plan in December to implement steps outlined by the European Commission’s opinion on Ukraine’s EU membership application. This includes combating corruption, developing an independent, effective and trusted judiciary and promoting freedom of expression and independent media.
2.4 Ukraine spiralling towards default, according to Fitch
Ukraine is heading towards default, according to the Fitch Ratings agency, Ukraine Business News reported on January 23.
The agency rated Ukraine's Long-Term Foreign-Currency IDR at 'CC', claiming that a further foreign currency commercial debt restructuring is probable, given the massive economic damage from Russia’s full-scale invasion and resulting large financial requirements in the medium term. Fitch sees that a degree of burden sharing by commercial creditors is a likely condition of the large financial assistance extended by official international creditors, the company stated in a report.
Ukraine deferred Eurobond payments in August for 24-months, saving the war-torn country $6bn; however, medium-term debt sustainability risks were left unresolved. Fitch notes that external debt service costs will rise to $5.4bn in 2024 and $7bn in 2025. This does not include $3.5bn in deferred Eurobond interest payments, which could be capitalised.
“While the timing of any such restructuring remains uncertain, there will be greater impetus for negotiations if the security outlook improves, and as the expiration of the Eurobond standstill draws closer,” Fitch stated.
Fitch affirmed Ukraine’s local currency IDRs at CCC-, reflecting the greater disincentives to include local-currency debt in any further debt restructuring. Only 5% is held by non-resident institutions, with 55% held by the National Bank of Ukraine (NBU) and 32% by the domestic banking sector, of which half are state-owned.
10 UKRAINE Country Report February 2023 www.intellinews.com