Ukraine's economy may rebound "relatively quickly" next year after a sharply negative growth in 2009, says Frank Gill, Standard & Poor's top credit analyst.

Ukraine's economy could expand 4.5% in 2010, compared with a huge 12% shrinkage in 2009, Mr Gill told Bloomberg.

"We see the potential for a relatively quick rebound next year," he said. Still, "the outlook remains highly uncertain as it hinges on external demand for metals as well as metals prices."
"Ukraine faces shocks, which would damage any economy," said Gill.

"Prices for chemicals and steel have declined sharply, while import prices are being pushed higher by rising natural gas tariffs and the exchange rate depreciation. At the same time ongoing political uncertainty is very unhelpful."

Ukraine has been forced to turn to the International Monetary Fund to avoid defaulting on its debt and to rescue the banking system and its currency.

S&P cut Ukraine's credit rating to CCC+, seven levels below investment grade and the lowest in Europe, on Feb. 25 saying political turmoil poses risks to the loan, reports Bloomberg.

"It is not clear how strong the commitment of the Ukrainian authorities is to implement the IMF program," said Gill. "Government debt is quite low, though rising significantly, but the willingness to pay the debt is not clear ahead of the presidential elections," scheduled to be held by January.

"Ukraine's budget is out of date," said Gill.

"A revision of revenues is needed in line with deteriorating growth prospects. Last year, the budget largely relied on revenue of value-added tax, which come from imports but imports are seen collapsing this year. Corporate taxes will be lower too."

Further "exchange rate depreciation raises the risk of bank and corporate defaults and rescheduling," said Gill. Still, "in the long-term perspective, it will help the economy to be more competitive as balance sheets are freed up again."