Fitch raised Ukraine’s rating to the level of probable default

The rating was revised in connection with the postponement of repayment of $6 billion of Ukraine's external debt

The Fitch rating agency raised Ukraine’s long-term default rating from “RD” (restricted default) to “CC” (probable default).

According to the information on the official website of Fitch, the rating was updated after the approval request for external debt restructuring on August 11.

It is about a 24-month postponement of the $6 billion payment of principal amount and interest on Ukrainian Eurobonds. 75% of the bondholders (by total principal amount) gave their consent to the restructuring, which exceeds the minimum required of 66.7%.

The agency is evaluating a broader restructuring of commercial debt as probable, although the timing is uncertain.

“We expect the war to extend well into 2023, driving public debt above 100% of GDP, adding to the already huge costs to infrastructure and economic output, and fuelling inflationary and external pressures, while deficit financing sources remain uncertain,” Fitch emphasizes.

The Agency also believes that the prospects of a negotiated political settlement over the war with Russia are weak.

“It is unclear either side will have sufficient military superiority to deliver on objectives, which could result in a long-drawn-out conflict,” the message states.

Fitch predicts that Ukraine’s economy will decrease by 33% in 2022 and recover slightly to 4% in 2023. At the same time, inflation will accelerate from 22.2% in July to 30.0% by the end of 2022 and will remain high in 2023.

The agency also expects that in 2023, the current account will return to a deficit of 1.7% of GDP in 2023, putting further pressure on international reserves, which have decreased in four months by $5.7 billion, to $22.4 billion.

Fitch forecasts the general government deficit rises to 28.6% of GDP in 2022 and remains large in 2023, at 21.9% of GDP due to hostilities and the need to replace critical infrastructure.

As GMK Center reported earlier, Fitch downgraded Ukraine’s long-term rating to the pre-default level on July 23 – from “CCC” to “C”. Already on August 14, rating agencies S&P and Fitch lowered Ukraine’s long-term and short-term ratings in foreign currency to SD (selective default) and RD (restricted default) respectively. Eurobond issue ratings downgraded to D (default).