The international rating agency Fitch Ratings recently raised the long-term issuer default rating (RDE) of Ukraine in national currency from “CCC-” to “CCC+” and confirmed the long-term RDE in foreign currency at the level of 'RD' (limited default). This may look like positive news, but this increase hides many financial problems that call into question the reality of the stability of the Ukrainian economy.
On August 30, Ukraine completed the restructuring process of sovereign Eurobonds worth $19.7 billion and the state-guaranteed debt of Ukravtodor for $0.7 billion. In total, the restructuring covered $20.5 billion in debt. This achievement is certainly an important step, but Fitch Ratings notes that even after this, Ukraine will still have to face serious financial difficulties.
While the rating upgrade to “CCC+” shows some progress, Fitch Ratings points to significant credit risk associated with a protracted war and large budget deficits. According to the agency's forecasts, Ukraine's budget deficit will reach 17.5% of GDP in 2024 and 15.3% in 2025. This is a serious challenge for the country's economic stability.
In addition, funding uncertainty from 2025, partly due to the US election cycle, possible donor fatigue and residual risks with EU funding, could further exacerbate the situation.
Ukraine faced problems in payments on the national debt. The suspension of payments ended on August 1, and the country was forced to negotiate with creditors on debt restructuring. As a result of successful agreements with the Committee of Eurobond owners, Ukraine managed to settle part of its debts. However, this did not solve all financial problems.
One of the biggest problems facing Ukraine is the restoration of the destroyed energy infrastructure. Massive attacks on energy facilities in August led to severe damage and delays in restoring connections to external power lines. The International Atomic Energy Agency (IAEA) reported the incomplete restoration of connections at PANPP, RANPP and ChNPP. This endangers the stability of Ukraine's energy system and may negatively affect the economic situation in the country.
