Investing.com -- Credit rating agency Fitch Ratings has reaffirmed Ukraine’s Long-Term Foreign-Currency Issuer Default Rating (IDR) as ’Restricted Default’ on May 23, 2025. The agency typically does not assign outlooks to sovereigns with a rating of ’CCC+’ or below.
Fitch has indicated that Ukraine is still in the process of a wider restructuring. The nation’s Long-Term Foreign-Currency IDR will remain in Restricted Default until it has normalized relations with a significant majority of its external commercial creditors.
In 2024, Ukraine restructured its outstanding sovereign Eurobonds and state-guaranteed Ukravtodor debt. Ukrenergo, the national energy company, has also reached a preliminary agreement on the restructuring of its USD825 million state-guaranteed Eurobonds, with payments on hold since November 9, 2024. The restructuring is expected to be completed by July 2025.
However, Ukraine and holders of its GDP warrants, worth USD2.6 billion, have not yet agreed on a restructuring plan. An external commercial loan from Cargill, worth USD0.7 billion and payments suspended from September 3, 2024, is also still awaiting restructuring.
Fitch has also maintained Ukraine’s higher Long-Term Local-Currency IDR, reflecting the country’s continued service of local-currency debt. As of May 2025, only a small portion (1.1%) of Local Currency debt is held by non-residents, with the majority held by the National Bank of Ukraine and domestic banks, mostly state-owned.
In mid-May, delegations from Russia and Ukraine engaged in direct talks in Istanbul, the first in three years, but no breakthrough was achieved. A minerals deal between the US and Ukraine has eased diplomatic tensions, but the potential economic benefits and the degree to which it could tie US economic interests with Ukraine’s strategic security objectives remain uncertain.
Despite the economic slowdown, Ukraine’s fiscal deficit narrowed to 17.2% of GDP in 2024 due to strong revenue performance. However, Fitch forecasts the deficit will rise to 19.3% of GDP in 2025. Ukraine’s reconstruction needs are estimated at USD524 billion over the next decade, about 2.8 times the nominal value of Ukraine’s GDP in 2024.
Ukraine’s funding needs for 2025 will be comfortably met, leaving additional liquidity buffers for the following year. Net foreign financing is expected to reach USD55 billion, relative to an average of USD25 billion a year in 2022-24, mainly due to the frontloading of profits from Russian frozen assets. The IMF has allocated USD9.1 billion as a contingency buffer for this year and USD8.4 billion to address anticipated budget deficits in 2026-2027.
However, funding uncertainties are high for 2026 and beyond. Fitch expects that domestic borrowings will increase in 2026, supported by a relatively resilient banking sector and lower domestic financing this year.
The current account deficit widened to 7.2% of GDP in 2024, from 5.3% in 2023. Fitch forecasts the current account deficit will widen to 14.5% of GDP in 2025 and narrow to 14.2% in 2026. Despite this, sizable external financial support will keep foreign exchange reserves high, at 6.8 months of imports by the end of 2025.
In response to a surge in inflation to 15.1% in April, from an average of 6.5% in 2024, the National Bank of Ukraine has tightened its monetary policy, raising the key policy rate by 250 basis points since December 2024. Inflation is forecast to average 12.3% in 2025, before easing to 6.5% in 2026.
Ukraine’s economic recovery has slowed, with real GDP expanding by 2.9% in 2024. Fitch has revised 2025 growth down to 2.5%, due to the challenges of a persistently tight labor market, the damage caused by attacks on gas infrastructure, and the war-related closure of the Pokrovsk mine.
The credit rating agency has also highlighted Ukraine’s ESG Relevance Scores (RS), which reflect the high weight that the World Bank Governance Indicators have in Fitch’s proprietary Sovereign Rating Model. Ukraine has a low WBGI ranking at 30.1, reflecting the Russian-Ukrainian conflict, weak institutional capacity, uneven application of the rule of law, and a high level of corruption.
Fitch also noted that the rating of Ukraine’s Long-Term Foreign-Currency IDR reflects its view that Ukraine is in default. The impact of the war with Russia on all aspects of Ukraine’s sovereign credit profile has been given an ESG RS of ’5’.
The agency has identified several factors that could lead to a downgrade or upgrade of Ukraine’s ratings. These include changes in the treatment of Local Currency debt, increased probability of a renewed restructuring or default, normalization of relations with a significant majority of external commercial debt creditors, and improved solvency prospects.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.