Fitch affirms Ukraine’s rating at ’RD’ amid ongoing debt issues

Investing.com -- Fitch Ratings has maintained Ukraine’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ’Restricted Default’ (RD) as the country continues its broader debt restructuring process.

The rating agency will keep Ukraine at ’RD’ until it normalizes relations with a significant majority of external commercial creditors. This would occur when Fitch determines that the restructuring of GDP warrants has become a protracted dispute no longer affecting relations with other commercial bondholders, or when a restructuring agreement is reached with remaining debt holders.

Ukraine missed a $665 million payment on $2.6 billion of GDP warrants on June 2, with the grace period expiring without payment. A second round of negotiations with investors to restructure these warrants failed in early November due to disagreements on exchange terms.

While Ukraine completed its core restructuring of $20.5 billion in sovereign Eurobonds and state-guaranteed Ukravtodor debt in September 2024 (representing 78% of commercial external debt), several instruments remain unresolved. These include the GDP warrants, Ukrenergo’s $825 million state-guaranteed Eurobonds, and a $700 million Cargill external commercial loan.

Fitch affirmed Ukraine’s Long-Term Local-Currency IDR at ’CCC+’, reflecting the country’s continued service of local-currency debt. Only 0.8% of local-currency debt is held by non-residents as of November 2025, with most owned by domestic banks and the National Bank of Ukraine.

Ukraine’s fiscal deficit is projected to reach 25.7% of GDP in 2025, the largest in Fitch’s sovereign universe and significantly above the ’B’/’C’/’D’ median of 3.4%. The deficit is expected to decrease to 19.7% of GDP in 2026. Defense spending remains high at 28% of GDP, comprising nearly 43% of government expenditure.

The country faces substantial reconstruction needs, estimated at $524 billion over the next decade – approximately 2.8 times Ukraine’s 2024 GDP. Ukraine will continue to rely heavily on external funding, with net foreign financing needs expected to reach $41 billion in 2025 and $44 billion in 2026.

With U.S. financial aid declining under the Trump administration, European countries are exploring new funding mechanisms. A proposed "reparations loan" would use immobilized Russian central bank assets at Euroclear to finance a €140 billion EU loan to Ukraine. The EU aims to agree on this loan by December, with first disbursements expected in the second quarter of 2026.

Despite record high current account deficits projected at 14.8% of GDP in 2025, foreign exchange reserves are expected to remain stable at 5.9 months of imports by year-end, above the ’B’/’C’/’D’ median of 3.8 months.

The war has intensified since late September, with Russian attacks destroying more than half of Ukraine’s domestic gas production and causing severe power outages. Despite this pressure, Russian forces have made only minor territorial advances of around 0.57% this year, now occupying 19.1% of Ukrainian territory including Crimea.

Fitch has lowered its 2025 growth forecast for Ukraine to 2.0% from 2.5%, citing weaker-than-anticipated growth in the first half of 2025 due to delayed harvest and higher energy imports. Growth is expected to accelerate to 2.4% in 2026 and 2.8% in 2027 as reconstruction efforts support economic expansion.

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