According to the agency, "Ukraine faces sizable external debt repayments against the backdrop of presidential and parliamentary elections in 2019. And while the economy is growing and inflation is on a downward path, the financing outlook is uncertain for government foreign currency redemptions beyond 2019, when Ukraine will have to negotiate a fresh agreement with the International Monetary Fund (IMF)".
The ratings reflect, based on the report, the country's low per capita income levels and challenging institutional and political environment, which reduces policy predictability and continuity. The ratings are also constrained by Ukraine's external refinancing risks, reflecting its current account deficits and large external repayment obligations relative to the National Bank of Ukraine's (NBU's) foreign currency reserves. The banking system's large -- albeit declining -- stock of nonperforming loans (NPLs) weighs on the sector's ability to support growth and remains a credit weakness. The lifting of capital controls, in place since 2014, will be conditional on economic and policy stability.
The ratings are supported by improving government finances, reflected in the declining general government-debt-to-GDP ratio, as well as Ukraine's likely compliance with the IMF program and the ongoing implementation of reforms -- such as the independence of the NBU -- which aid the government's ability to access commercial debt markets and receive concessional funding from international financial institutions.
"We could consider a positive rating action if we see improvements in growth, fiscal and external imbalances beyond our expectations, and if we conclude that the security situation in the non-government-controlled areas in the East of the country has stabilized and further escalation is unlikely," S&P said.