Fitch affirms Ukraine rating at 'CC'
MOSCOW. June 26 (Interfax) - Fitch Ratings has affirmed Ukraine's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'CC', Ukrainian media reported citing the agency's statement.
"The affirmation of Ukraine's Long-Term Foreign-Currency IDR at 'CC' reflects Fitch's expectation of a further commercial debt restructuring before the two-year standstill on Eurobond payments expires in September 2024," Fitch said.
Fitch estimates that external sovereign debt servicing will rise to $7.6 billion in 2025, that large fiscal deficits into the medium term will add to already high public debt, and that burden sharing with commercial creditors is a likely condition of ongoing official sector support.
It said Ukraine would likely prefer a single comprehensive debt restructuring next year, but if security-related uncertainty precludes this, the agency would still anticipate an intermediate step of further deferral on Eurobond payments, similar to that taken by official creditors who have agreed to extend the official sector standstill to the end of 2026.
Fitch also affirmed Ukraine's 'CCC-' Local-Currency IDRs. It said a higher rating than foreign-currency debt reflects greater disincentives to restructure local-currency debt, given only 4% is held by non-residents, with 48% held by National Bank of Ukraine and 38% by the domestic banking sector, half of which is state-owned.
"We do not see significant international pressure to bring domestic debt into a restructuring, also due to risks to domestic demand for government debt and confidence in banks. Nevertheless, over a longer time horizon, there is still substantial credit risk," the agency said.
Fitch projects Ukraine's GDP will grow 3.5% in 2023 and 4.0% in 2024, having contracted 29% in 2022.
Fitch projects a government deficit of 17.3% of GDP in 2023 up from just under 16% or 25% without international donor aid in 2022. "We anticipate the deficit remains high into the medium term, partly given huge reconstruction needs, and structurally higher defense outlays," the agency said.
Fitch sees greater financing uncertainty beyond next year, partly due to potential for donor fatigue.
Fitch forecasts government debt will rise to 85% of GDP at end-2023 and 94% at end-2024. This grew 30 percentage points to 78.5% of GDP last year.
Fitch forecasts the current account deficit will widen to 1.8% of GDP in 2023 and 3.5% in 2024, compared with a surplus of 5% in 2022, as imports recover more quickly than exports.
Fitch forecasts inflation will falls to 14.5% at the end of 2023, end-year, with a 5pp cut in the policy interest rate to 20%. It expects inflation will average at 12.7% in 2024, down from 15.3% at end-May 2023 and 26.6% at end-2022.