International rating agency Fitch Ratings recently upgraded Ukraine's long-term local currency issuer default rating (IDR) to 'CCC+' from 'CCC-' and affirmed its long-term foreign currency IDR at 'RD' (restricted default). This may seem like positive news, but behind this upgrade lies a host of financial problems that call into question the reality of the stability of the Ukrainian economy.
On August 30, Ukraine completed the restructuring of its $19.7 billion sovereign Eurobonds and $0.7 billion of Ukravtodor’s state-guaranteed debt. In total, the restructuring covered $20.5 billion of debt. This achievement is certainly an important step, but Fitch Ratings notes that even after this, Ukraine will still face serious financial difficulties.
While the rating upgrade to “CCC+” demonstrates some progress, Fitch Ratings points to significant credit risk associated with the protracted war and large budget deficit. According to the agency's forecasts, Ukraine's budget deficit will reach 17.5% of GDP in 2024 and 15.3% in 2025. This poses a serious challenge to the country's economic stability.
Furthermore, funding uncertainty from 2025, partly due to the US election cycle, possible donor fatigue and residual risks with EU funding, may further exacerbate the situation.
Ukraine has faced problems with payments on its public debt. The suspension of payments ended on August 1, and the country was forced to negotiate with creditors about debt restructuring. As a result of successful agreements with the Eurobond Holders Committee, Ukraine managed to settle part of its debts. However, this did not solve all its financial problems.
One of the biggest challenges facing Ukraine is the restoration of its damaged energy infrastructure. Massive attacks on energy facilities in August caused serious damage and delays in restoring connections to external power lines. The International Atomic Energy Agency (IAEA) has reported that connections to the PANPP, RNPP, and Chornobyl NPP have not been fully restored. This threatens the stability of Ukraine's energy system and could negatively impact the country's economic situation.
