Coronavirus lowers Ukrainian cities' tax collection, adds to weakening debt ratios – Fitch
The economic impact of the coronavirus pandemic will put pressure on Ukrainian cities' finances. In particular, the health crisis will lead to lower tax revenue in 2020-2021, Fitch Ratings has said.
"Fitch estimates that the operating revenue of rated Ukrainian cities will be affected by lower collection of personal income tax – their major revenue source – and lower local tax proceeds, some of which were waived for a few months without compensation from the state," the rating agency said.
Fitch said that owing to the evolving budgetary system in Ukraine, further reallocation of responsibilities between government tiers is likely, in Fitch's view, while the risk of unfunded mandates transfer is growing in the current economic downturn.
"We believe the pandemic will cause capital market conditions to tighten; this includes impaired access to financing amid undermined growth prospects and high refinancing pressure on the sovereign," Fitch said.
The debt burden of cities remains moderate, but they are heavily exposed to off-balance-sheet liabilities from their public sectors.
"Much of the cities' and municipal companies' debt carries forex risk that pressures budgets due to Ukrainian hryvna volatility in the absence of hedging mechanisms," Fitch said.
Fitch rates eight Ukrainian cities. Six are capped by the sovereign ('B'/Stable), as they have a Standalone Credit Profile (SCP) of 'b+' (Kyiv, Kharkiv, Lviv, Odesa, Mykolaiv, Mariupol), while two (Kryvy Rih and Zaporizhia) are equalised with the sovereign, as their SCP is 'b.'