Fitch Ratings, the international rating agency, yesterday revised the outlook on the Ukrainian long-term foreign currency sovereign rating to positive from stable. At the same time, the BB- rating was affirmed. The outlook upgrade was attributed to better prospects for medium-term stability, after the peaceful transfer of power to a new, reform-oriented government in the 'Orange Revolution' in late 2004. The new government, under President Viktor Yushchenko, seems committed to structural reforms, and its position currently appears strong. Notably, Fitch commends Ukraine on steps taken to curtail corruption and streamline the tax system, while foreign policy is consistently run with future membership of the European Union (EU) as the main goal. However, the agency notes that the economy still faces considerable structural challenges, and the large fiscal deficit still poses a risk to macroeconomic stability. Further progress in large-scale privatisation is needed, while the upcoming parliamentary election adds an element of uncertainty. Yet again, Ukraine's creditworthiness is supported by the moderate debt ratios and good external liquidity. Indeed, Fitch projects that Ukraine will become a net public external creditor in 2005 or 2006. Significance: Fitch's outlook revision follows a rating upgrade in January (see Ukraine: 24 January 2005: Fitch Upgrades Ukraine on Lower Political Risk). Moody's also revised its outlook on Ukraine in February (see Ukraine: 21 February: Moody's Changes Ukraine Outlook to Stable on Politics), and Standard and Poor's upgraded its rating in May (see Ukraine: 12 May 2005: S&P Raises Ukraine's Long-Term Foreign Currency Rating). Our own outlook on Ukraine is positive. Progress in clamping down on corruption is encouraging, as it is crucial in improving Ukraine's attractiveness to foreign investors - the business climate had been cited as a major deterrent. However, fears remain regarding the speed with which the government will tackle remaining structural reforms. In addition, while Ukrainian financial ratios are strong, concerns about the country's macroeconomic stability are still present, as higher public social spending adds to inflation pressure in the fast-growing economy.