Fitch Ratings has revised the Outlook on Ukraine's Long-Term Foreign-Currency Issuer Default Rating (IDR) to Stable from Positive and affirmed the IDR at 'B'.

"The revision of Ukraine's Outlook to Stable reflects the significant impact of the COVID-19 pandemic... The heightened macroeconomic and fiscal risks associated with this unprecedented global shock will partially reverse Ukraine's improvements in recent years in terms of a declining debt burden, the normalisation of growth prospects after the 2014-2015 geopolitical and economic crises, and reduced growth volatility," Fitch said.

Fitch forecasts the economy will contract by 6.5% in 2020, compared with 3.2% growth in 2019, reflecting the COVID-19 pandemic shock to the global economy, containment measures and a weaker currency affecting investment and private consumption. Consumption will be further hindered by the expected decline in household remittances (7.8% of GDP in 2019).

Fitch said that the shock will be partly cushioned by Ukraine's low reliance on tourism, relatively more diversified commodity exports (including 40% soft commodities) and lower international oil prices given its net importer status.

"We expect the economy to recover to 3.5% in 2021, in line with our medium-term growth view for Ukraine. However, there are material downside risks to our forecasts, given the uncertainty around the extent and duration of the coronavirus outbreak," Fitch said.

The next scheduled review date for Fitch's sovereign rating on Ukraine will be September 4, 2020.

Fitch expects inflation to average 5.3% in 2020 and 5.9% in 2021, somewhat above the forecast 5.0% and 4.5% 'B' medians but in line with the NBU's inflation target (5% plus or minus 1% in 2020).

Fitch forecasts the general government deficit to rise to 7.1% of GDP in 2020, up from 2.0% in 2019 and the original target of 2.1%. Fitch expects the fiscal deficit to decline to 3.4% in 2021.

"General government debt will jump to 57.1% of GDP (64.0% of GDP including guarantees) and 57.4% in 2021, from 44.4% (50.4% with guarantees) in 2019 and close to the forecast 60% 'B' median, due to the wider deficit and sharp hryvnia depreciation (forecast at 25% yoy in 2020)," Fitch said.

Fitch expects international reserves to fall to $22.9 billion in 2020, down from $25.3 billion at the end of 2019, reflecting public debt repayments and weaker non-official capital inflows.

Fitch expects the current account deficit to remain low at 2.2% of GDP in 2020, as resilience in food commodity exports (40% of total), declining prices for energy and commodity imports.

External sovereign amortisations (government plus NBU) will rise to $5 billion in 2020 and $4.8 billion in 2021 (external bond repayments averaging $2.4 billion).

Fitch maintains its baseline scenario that Ukraine will obtain final IMF board approval for a new programme in 1H20, but further delays cannot be ruled out.