Fitch maintains Ukraine's 'Restricted Default' rating

Fitch Ratings has reaffirmed Ukraine's Long-Term Foreign-Currency IDR at 'Restricted Default', citing ongoing debt restructuring with commercial creditors, including holders of GDP warrants and Cargill loans. While Ukraine has successfully restructured some Eurobonds and Ukrenergo debt, challenges remain with GDP warrants and the Cargill loan, and funding uncertainties are high for 2026 and beyond despite near-term financial support from foreign financing and the IMF. Ukraine's economic recovery has slowed, with Fitch revising 2025 GDP growth down to 2.5%, and inflation has surged, prompting monetary policy tightening.

Analysis

Fitch Ratings has maintained Ukraine's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'Restricted Default' (RD) as of May 23, 2025, highlighting the nation's ongoing process of a wider debt restructuring. This status will persist until Ukraine normalizes relations with a significant majority of its external commercial creditors. While Ukraine successfully restructured its sovereign Eurobonds and state-guaranteed Ukravtodor debt in 2024, and Ukrenergo has a preliminary agreement for its USD825 million state-guaranteed Eurobonds (expected by July 2025), significant hurdles remain. Restructuring agreements are still pending for USD2.6 billion in GDP warrants and a USD0.7 billion external commercial loan from Cargill, with payments on the latter suspended since September 3, 2024. In contrast, Ukraine’s Long-Term Local-Currency IDR is higher, supported by continued servicing of this debt, which is predominantly held by the National Bank of Ukraine and domestic, mostly state-owned, banks, with only 1.1% held by non-residents as of May 2025. Ukraine's fiscal deficit narrowed to 17.2% of GDP in 2024 due to strong revenues, but Fitch projects it to widen to 19.3% in 2025. The country's reconstruction needs are immense, estimated at USD524 billion over the next decade, approximately 2.8 times its 2024 nominal GDP. Near-term funding for 2025 appears secure, with net foreign financing expected at USD55 billion, bolstered by frontloaded profits from frozen Russian assets and IMF allocations (USD9.1 billion contingency buffer for 2025, USD8.4 billion for 2026-2027 budget deficits), but funding uncertainties are significant for 2026 and beyond. Economically, Ukraine's recovery is decelerating, with real GDP growth revised down by Fitch to 2.5% for 2025 from 2.9% in 2024, attributed to a tight labor market, infrastructure damage, and war-related disruptions like the Pokrovsk mine closure. Inflation surged to 15.1% in April 2025, prompting the National Bank of Ukraine to raise its key policy rate by 250 basis points since December 2024; inflation is forecast to average 12.3% in 2025 before easing. The current account deficit widened to 7.2% of GDP in 2024 and is projected to reach 14.5% in 2025, though substantial external financial support is expected to maintain foreign exchange reserves at 6.8 months of imports by end-2025. Fitch's ESG Relevance Scores underscore the severe impact of the war and governance challenges, with a low World Bank Governance Indicators ranking reflecting conflict, weak institutions, and corruption.

Key Decisions for Investors

• Investors should exercise extreme caution with Ukrainian Long-Term Foreign-Currency denominated debt, given its 'Restricted Default' status and the ongoing, complex restructuring negotiations with multiple commercial creditors.
• Monitor closely the progress of pending restructuring agreements, particularly for the GDP warrants and the Cargill loan, as successful resolutions are critical for improving Ukraine's credit profile.
• Assess the high degree of uncertainty surrounding funding beyond 2025, as reliance on external financial support and the materialization of projected aid will be key determinants of fiscal stability and repayment capacity.
• Factor in the significant macroeconomic headwinds, including slowing GDP growth, high inflation, a widening current account deficit, and the immense long-term reconstruction costs, which will continue to pressure Ukraine's sovereign creditworthiness.