24 May 2022 11:40

Moody's downgrades Ukraine's rating to Caa3 with negative outlook

KYIV. May 24 (Interfax-Ukraine) - Moody's Investors Service (Moody's) international rating agency has downgraded the Ukrainian government's foreign and domestic currency long-term issuer ratings and foreign currency senior unsecured debt ratings to Caa3 from Caa2.

"The downgrade of the ratings to Caa3 is driven by the increased risks to Ukraine's government debt sustainability," Moody's said in a statement.

Moody's has also changed the outlook to negative from ratings under review. The review for downgrade that was initiated on 25 February 2022 has been concluded.

While Ukraine is benefitting from large commitments of international financial support, helping to mitigate immediate liquidity risks, the resulting significant rise in government debt is likely to prove unsustainable over the medium term, it said.

"Concerns around the sustainability of such a high government debt burden may impede further access to official financing for the purposes of servicing commercial debt. At the Caa3 rating level, Moody's expects a recovery in the event of default of typically in the order of 65-80%," according to the statement.

"The recovery by investors in the event of default could be lower than 65-80%, which would be consistent with a rating below Caa3," Moody's said.

Moody's expects Ukraine's real GDP to contract by around 35% in 2022, with the Ukrainian economy starting to gradually bounce back in 2023.

Moody's estimates financing needs at around $50 billion (35% of 2022 GDP) for 2022 and forecasts a rise in government debt to around 90% of GDP from around 49% at the end of 2021.