Ukraine’s Bond Rating and Economic Outlook

LONDON (Reuters) – Ratings agency Fitch assigned Ukraine’s newly-restructured international bonds a deep-into-junk ‘CCC’ rating on Thursday, maintaining the war-torn country’s overall foreign currency score in “selective default”.

Fitch stated that the CCC score reflects the “still substantial credit risk given the protracted nature of the war” and anticipates that Kyiv will face huge fiscal deficits of 17.5% of gross domestic product (GDP) this year and 15.3% in 2025.

There remains uncertainty about conditions beyond 2025 due to various factors, including the US electoral cycle, potential donor fatigue, and residual risks over EU financing plans.

The restructuring last month involved over $20 billion of Ukraine’s mainly dollar-denominated international debt. This marks the second restructuring in a decade due to the ongoing conflict with Russia, following a similar move in 2015 after the annexation of Crimea.

Fitch forecasts a decrease in Ukraine’s general government debt ratio to 89.6% of GDP, compared to its earlier estimation of 92.5% before restructuring.

Ukraine’s long-term foreign currency (LTFC) rating remains at “restricted default” due to plans to restructure a few billion dollars worth of separate commercial debt instruments known as warrants. Fitch indicated that Ukraine’s LTFC IDR will maintain its ‘RD’ status until it determines that exchanges have been completed and that relationships with a significant majority of external commercial creditors have normalized.

However, Ukraine’s local currency rating was upgraded to ‘CCC+’ from ‘CCC-‘. Kyiv continues to meet payment obligations on its hryvnia-denominated bonds, which are predominantly held by state-owned banks.

The International Monetary Fund (IMF) has initiated the fifth review of its lending program for Ukraine. If successful, this could facilitate $1.1 billion in new financing in the upcoming months, which would help mitigate risks to the country’s macroeconomic and financial stability in the near term, according to Fitch.