CIS and Black Sea region financing needs are large, but manageable

The coronavirus pandemic will push fiscal financing needs in the Commonwealth of Independent States (CIS) and Black Sea region to record high levels in 2020, according to a new report from Fitch Ratings. However, policy improvements, availability of official financing, oil exporters’ savings and strengthened domestic markets have provided near-term support.

Fitch has negative outlooks on three of the eight sovereigns it rates in the region and two more have ‘B’ ratings that reflect high external financing needs and relatively low external buffers. Median fiscal financing needs (general government deficit plus debt amortisations) for the CIS and Black Sea region are forecast at 10 per cent of GDP in 2020, surpassing the peak of seven per cent of GDP in 2009 and 2015. In gross terms, Fitch forecasts financing needs at 152 billion US dollars, which is equivalent to 7.4 per cent of projected regional aggregate GDP for 2020.

Fitch expects official financing to cover the majority of total 2020 financing needs for Georgia (BB) and Uzbekistan (BB-), and external financing for Armenia (BB-) and Ukraine (B). Armenia, Georgia and Ukraine have IMF programmes and Uzbekistan accessed the Fund’s facilities for rapid disbursements. External official financing for these oil importers also supports balance of payments financing.

Oil exporters Kazakhstan (BBB) and Azerbaijan (BB+) will meet the majority of their funding needs by tapping their sovereign wealth funds and the ratings agency expects the assets of Azerbaijan’s SOFAZ and Kazakhstan’s NFRK to remain large, supporting creditworthiness. Russia (BBB) will use its National Wealth Fund to compensate for the loss of oil revenue, but will rely on domestic markets for the majority of its financing need.

Stronger policies and improved macroeconomic stability benefit domestic financing conditions. Domestic markets will represent a key source of financing in the region, and Fitch expects them to provide the majority of financing for Russia and Ukraine, around half for Armenia and about one-third for Kazakhstan and Georgia. External market financing is not an important source of deficit financing and will remain limited in 2020.


Fiscal financing needs will remain high in 2021 (median of 6.3 per cent of GDP), with upside risks stemming from a weaker-than-forecast recovery and contingent liabilities. For most regional sovereigns, retaining policy credibility and consistency will be an important factor to maintain resilience to external shocks and to continue to access external official financing, domestic financing in sustainable terms and potentially external markets.

The dynamics of government debt (and external debt) will remain a key factor for creditworthiness. Fitch forecasts general government debt to increase by an average of 8.1 percentage points of GDP in the region in 2020, lifting the median to 41 per cent of GDP.

In addition, most sovereigns in the region will increase their already high share of foreign-currency-denominated debt and, with the exception of Russia and Kazakhstan, this will remain above peers, representing a key vulnerability for debt dynamics.

The coronavirus shock to growth and public finances has put pressure on the region’s ratings. Fitch has moved the outlooks to negative from stable for Armenia (BB-) and Georgia (BB) and the outlook for Ukraine (B) to stable from positive. Policy uncertainty, notably around the exchange rate, amid lower oil prices led to a revision of Azerbaijan’s (BB+) outlook to negative from stable despite a robust sovereign balance sheet.

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