Moody's maintains 'Ca' rating on Ukraine as effects of war continue

Moody's affirmed Ukraine's 'Ca' rating with a stable outlook, citing the ongoing impact of the war with Russia on the country's economy and finances, as well as uncertainties surrounding peace negotiations. The affirmation follows Ukraine's default on over half a billion dollars in GDP warrant payments and resistance to further peace talks without Russian proposals. Moody's projects Ukraine's GDP growth to slow to 2.5% in 2025, remaining subdued through 2027, while Fitch recently affirmed Ukraine's long-term foreign currency sovereign credit rating at 'Restricted Default'.

Analysis

Moody's has affirmed Ukraine's 'Ca' sovereign credit rating with a stable outlook, highlighting the profound and enduring negative effects of the war with Russia on the nation's economy and public finances. This rating action underscores the highly speculative nature of Ukraine's debt obligations, which Moody's defines as being in, or very near, default, albeit with some prospect of principal and interest recovery. The agency's assessment is influenced by subdued growth prospects, with GDP growth forecasted to slow from 2.9% in 2024 to 2.5% in 2025 and remain weak through 2027, stemming from persistent security challenges, labor shortages, and attacks on critical energy infrastructure. Compounding these economic difficulties, Ukraine recently defaulted on over half a billion dollars in GDP warrant payments, marking its first such default on these instruments. Furthermore, uncertainties surrounding peace negotiations persist, with Kyiv declining to attend further talks without prior Russian proposals. This situation follows a near 30% economic contraction in 2022, and despite modest growth in 2023 and 2024, GDP remains below pre-war levels as the country undertakes extensive debt restructuring. Reinforcing the precarious financial standing, Fitch Ratings recently affirmed Ukraine’s long-term foreign currency sovereign credit rating at 'Restricted Default'.

Key Decisions for Investors

• Given Ukraine's 'Ca' rating, recent default on GDP warrants, and Fitch's 'Restricted Default' status, investors should treat any exposure to Ukrainian sovereign debt as highly speculative and entailing substantial risk of further losses.
• The subdued economic growth forecasts through 2027, coupled with ongoing war-related disruptions and uncertain peace prospects, suggest a prolonged period of economic instability, advising extreme caution for new investments.
• Investors holding existing Ukrainian debt instruments should closely monitor debt restructuring negotiations and geopolitical developments, as recovery prospects remain highly uncertain and dependent on factors largely outside of direct economic control.