Ratings agency Fitch Ratings downgraded Ukraine’s economy after the country began the formal process of suspending payments on its foreign bonds and restructuring $22.8 billion in public debt following Russia’s invasion.
As Bloomberg reports, the country’s credit rating was downgraded to C from CCC on Friday by Fitch, which said the government’s request to defer foreign debt payments constituted a “default-like process.” The rating will be downgraded again to RD if the proposal is accepted by creditors, a move the house said was likely.
“Even if not accepted, Fitch considers the risk of a default or the initiation of an emergency debt swap to be high as the government tries to maintain liquidity in the face of intense military spending pressure,” the rating agency said in a statement on Friday.
The Kiev government filed a formal request on Wednesday, asking bondholders to agree to a two-year payment freeze and changes to GDP warrants by the middle of next month.
The Treasury said it had “received explicit indications of support” for the plan from a select group of its biggest debt holders, including BlackRock, Fidelity International and Amia Capitaland Gemsstock. The Paris Club also supported the suspension of debt service.
In addition to the suspension of payments, Fitch said a broader restructuring of the government’s commercial debt would also be required, although the timing remains uncertain. The house expects the war to continue into next year, driving the economy to shrink by 33% this year – a blow that will have long-term effects, as the government estimates that reconstruction costs will rise to at least $750 billion over the next decade.
Ukraine’s foreign exchange reserves have collapsed, while its monthly budget deficit averaged $4 billion in the second quarter due to war-related spending. Fitch expects public debt to reach 92% of the country’s GDP by the end of this year and 103% by the end of 2023.
“Ukraine’s ability to meet its extremely large financing needs by 2023 is highly dependent on multilateral and bilateral support, which is currently uncertain,” the statement said. “And we judge that debt restructuring is a possible condition for the continuation of external support on such a scale.”
Ukraine is rated Caa3 by Moody’s and CCC+ by S&P Global Ratings.
Source: Capital
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