LONDON (Reuters) -Ratings agency Fitch gave Ukraine's newly-restructured international bonds a deep-into-junk 'CCC' rating on Thursday, and kept the war-torn country's overall foreign currency score in "selective default".
It said the CCC score reflected the "still substantial credit risk given the protracted nature of the war" and its expectations that Kyiv will have huge fiscal deficits of 17.5% of gross domestic product this year and 15.3% in 2025.
There is also uncertainty about what happens beyond 2025, "partly due to the US electoral cycle, potential donor fatigue, residual risks over EU financing plans", it added.
Last month's restructuring involved over $20 billion of Ukraine's mainly dollar-denominated international debt.
It is the second restructuring in a decade the country has been forced to undertake in the wake of a Russian invasion. The previous one was in 2015 following the annexation of Crimea.
Fitch forecasts it will lower Ukraine's general government debt ratio to 89.6% of GDP, compared to its pre-structuring projection of 92.5%.
It also kept Ukraine's long-term foreign currency (LTFC) rating - which effectively governs its access to international capital markets - at "restricted default" because Kyiv still plans to restructure a few billion dollars worth of separate commercial debt instruments called warrants.
"Ukraine's LTFC IDR will remain 'RD' until Fitch judges the exchanges have been completed and relations with a significant majority of external commercial creditors are normalised," it said.
It did however upgrade Ukraine's "local-currency" rating to 'CCC+' from 'CCC-'. Kyiv is still making payments on its hryvnia-denominated bonds as they are predominantly held by the country's mostly state-owned banks.
The International Monetary Fund has also begun the fifth review of its lending programme to Ukraine which, if successful, would help the country secure $1.1 billion in new financing in the coming months.
The funding will reduce risks to Ukraine's macroeconomic and financial stability in the near term, Fitch said.