Ukraine Likely to Maintain Substantial Fiscal Deficits as Domestic Revenue Generation Remains Weak, Fitch Says

Fitch Ratings expects Ukraine to continue running large fiscal deficits, citing weak domestic revenue generation as the main constraint on consolidation. The transmission channel runs through sovereign financing needs: persistent deficits must be funded through external official support, international bond markets, or domestic debt issuance, and feeble tax receipts raise the share of borrowing that depends on donor flows rather than organic market demand. Ukrainian sovereign debt and the hryvnia are the most directly exposed, since heavier reliance on external financing increases vulnerability to shifts in donor appetite and to any delay in disbursements, while sovereign spreads and the currency's risk premium tend to widen when deficit financing looks uncertain. Traders should watch the timing and size of the next International Monetary Fund program review and associated disbursement decisions, as these will indicate whether the financing gap is being bridged on schedule.

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