Fitch downgrades Ukraine’s rating to pre-default level
25 July 2024 09:57
The international rating agency Fitch Ratings has downgraded Ukraine’s long-term foreign currency issuer default rating (IDR) to ‘C’ from ‘CC’. The decision was made on 24 July 2024 and reflects the beginning of a default-like process, the agency said.
The main reason for the downgrade was the agreement in principle reached on 22 July between the Ukrainian government and some Eurobond holders on the terms of the debt restructuring. This comes after the parliament last week approved legislation allowing the government to suspend commercial external debt payments for three months.
Fitch views the deal as an exchange of distressed debt, which involves a significant deterioration in terms, including principal and interest reductions and extensions of maturity. The agency expects that Ukraine will not service its external commercial debt, including the coupon on the 2026 Eurobonds due on 1 August, until the restructuring agreement with bondholders is finalised.
The move is in line with the terms of the IMF’s four-year, US$15.6bn Extended Fund Facility, which provides for a significant debt restructuring to create fiscal space and restore debt sustainability.
Fitch predicts that Ukraine’s budget deficit will remain high at 17.1% of GDP in 2024, and public debt will rise to 92.5% of GDP. The agency also expects the war to continue through 2024 and into 2025 in its current general parameters.
