The U.S. credit rating agency Fitch Ratings on March 6 gave Ukraine a positive outlook, citing the likelihood of a deal with the International Monetary Fund.

The Fitch rating agency believes that Ukraine will be able to reach a deal with the International Monetary Fund in the first half of 2020.

However, most other analysts are much less optimistic. 

Fitch on March 6 affirmed Ukraine’s long-term foreign and local currency default ratings at B. The agency wrote that this positive outlook reflects Fitch’s expectations of the country’s continued engagement with the IMF.

“Fitch’s baseline scenario is that Ukraine obtains final IMF Board approval for a new programme in 1H20, but further delays cannot be ruled out,” the agency wrote in a news release. 

Fitch previously upgraded Ukraine’s debt ratings from B- to B in September, citing “technocratic, pro-western and reform-minded ministers” in ex-Prime Minister Oleksiy Honcharuk’s Cabinet of Ministers.

The agency wrote that the new government, under the leadership of Prime Minister Denys Shmygal, will need to avoid economic policy uncertainty, manage a smooth transition towards IMF negotiations and reinforce President Volodymyr Zelensky’s credibility. 

But it is that same credibility that was called into question by a slew of observers shortly after the cabinet reshuffle on March 4. 

Concorde Capital wrote in a March 6 analysis paper that the reshuffle, enacted just five months after the Cabinet of Ministers got a supposed one year immunity “lacked an adequate explanation” from the president. The move spooked fixed income investors. 

“Unfortunately, we have no positive message to them: the sovereign risk indeed has risen, primarily because these changes significantly reduce the chances for Ukraine’s smooth cooperation with the IMF,” Concorde wrote. 

Concorde does not think that the new cabinet will do any better than the previous one and also raises the risk of Ukraine approaching a “serious political crisis” this year. The firm warned that populist politics might replace needed structural reforms and allow oligarchs to tighten their grip on the reins of the country.

“Taking all this into account, we no longer see an IMF deal in 2020 as a base-case scenario,” Concorde wrote. 

The investment bank Dragon Capital’s outlook was similarly glum. 

“The composition of the new cabinet, which failed to include the previous government’s key market-oriented ministers and little policy detail offered by the new PM thus far, are raising questions about the continuation and quality of reforms, despite Zelensky’s pledge of no reversal,” Dragon Capital wrote in its own analysis on March 6.

Serhiy Fursa, a specialist on sales of debt securities at Dragon Capital, said Honcharuk’s removal benefited infamous oligarch Ihor Kolomoisky and that the IMF deal would definitely fall through as a result. Many business observers have long suspected Zelensky of being under Kolomoisky’s influence and the cabinet changes did little to dispel that suspicion. 

The Morgan Stanley investment bank on March 5 advised its clients to sell their Ukrainian eurobonds. It expressed concerns over risks of a slowdown on reforms and delays in IMF cooperation.

While Andy Hunder, president of the American Chamber of Commerce, spoke well of Shmygal’s track record, he noted that investors took the reshuffle poorly and that the cabinet change itself was rushed and poorly prepared. 

Many regretted the dismissal of the reformist, technocratic Cabinet, including widely respected Finance Minister Oksana Markarova. 

One consequence that might interfere with an IMF deal is uncertainty over a draft law created by ousted Prime Minister Oleksiy Honcharuk that would make the return of insolvent banks to former owners impossible. The bill was meant to stop Kolomoisky from getting back PrivatBank, which was nationalized in 2016 after $5.5 billion were allegedly siphoned from its coffers. 

Even before Honcharuk’s replacement, proposed changes to the bill that would significantly weaken it were submitted to parliament. Leaked copies of the changes obtained by Ukrainian media revealed that the amended version would grant the Cabinet of Ministers the power to decide how much compensation former bank owners would be entitled to if a court overruled a bank’s declaration of insolvency. 

Concorde Capital wrote that Shmygal’s cabinet has the option to engage in populism and concede to oligarchs, which might further degrade the confidence of international partners. Or it can try to stay on the path of reform and risk being replaced in the fall. There is only a small chance that the cabinet will be able to “do the impossible,” Concorde wrote.

“The main conclusion from these events is that the success of Shmyhal’s cabinet will be based on its popularity among the public and its ability to compromise with powerful oligarchs,” according to Concorde. 

Fitch conceded that a deal with the IMF may be delayed by “disruptive cabinet overhauls,” as well as court rulings that reverse reforms, poor execution of reforms, potential fragmentation of the Servant of the People party’s representation in parliament and the influence of powerful oligarchs.