Fitch downgrades Ukraine further into default zone

US-based credit rating agency Fitch has warned of an imminent default in Ukraine, announcing in a statement on Wednesday that it had further downgraded Kiev’s credit rating. 

The agency said the move from ‘CC’ to ‘C’ reflects its view that a default or default-like process for Ukraine has begun, after Kiev reached an agreement in principle with a group of foreign investors to restructure its $20 billion debt. 

The Ukrainian government on Monday struck a preliminary deal with the bondholders’ committee on restructuring terms. The proposal provided a 37% nominal haircut on Ukraine’s outstanding international bonds, saving Kiev $11.4 billion in payments over the next three years. Ukraine will issue new Eurobonds in return.

The move comes after the Ukrainian parliament approved legislation last week allowing the government to suspend debt payments for three months and enter a debt default, while the restructuring agreement with investors is finalized.

“The reported agreement with external commercial creditors constitutes a distressed debt exchange (DDE) under its sovereign rating criteria,” Fitch said.

According to the company, the move “marks the start of a default-like process.”

The agency also predicted the state deficit to remain high at 17.1% of Ukraine’s GDP this year, noting defense spending amounted to 31.3% of GDP in 2023.

The agency projects government debt to surge to 92.5% of the country’s GDP in 2024.

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